
Rosie - posted on 08/04/2011 ( 4 moms have responded )
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there are a bunch of very intelligent ladies here, so i have a question for you all, lol. i am completely clueless when it comes to the stock market. political science in high school was a joke. it was boring as hell, the teacher was the football coach, i didn't learn squat, and never wanted to cause it was so boring. i would like help understanding it more.
why is there a stock market? why does it affect the economy so much? does the government put our tax money into it? why do they do that if they do?
i am simply at a loss as to why this thing that ruins everything, or makes some people incredibly rich by chance, is around. can the world function without markets? why not? i kinda understand supply and demand, but i sit there and think well, if there isn't enough of something why does the price HAVE to go up? who says it has to? idk, i'm stupid i know....
sorry for sounding like an idiot, but hey, at least i'm trying to learn. :)
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Amber - posted on 08/04/2011
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Some companies on the stock market could get loans, but others couldn't You have to have more than a good idea for the bank to hand over their money to you, which means many won't qualify for it.
Plus, with stock, you have the option of paying dividends to your owners or reinvesting the money in your company to build more capital, advertise, research for expansion of product lines...you have many many options. With a loan, you simply pay the money back. No real option there.
An additional potential bonus is that owners are the last to get paid back in the instance that a liquidation occurs. This keeps that money from being spread out too far and allows for a higher likelihood that lenders will be paid off and liabilities won't remain.
Plus...loans increase your liabilities, which isn't great for company standing. Stocks increase owners' equity in the company. I won't go into too much detail, but this basically means that your company ratios are better (especially the current ratio which is the most common) and there is more working capital within the company.
Another big reasons that the stock market has become so important recently is the derivatives market. Derivatives are basically investments made on other investments....
It's difficult to explain, but basically some people buy an investment assuming that interest rates/stock prices will change drastically and they will make money on it. It's incredibly risky, so those people have to keep an almost obsessive eye on the market so they can sell at the perfect time.