Saturday, 23 March 2019

What is the Stock Market - Step by Step

What is the Stock Market - Step by Step

This is definitely intended for just the people that have no idea what the stock market is, maybe you were doing some homework right now for school and you can use this analogy that I'm about to use.

But I just want to talk about what is a stock market from a very simplistic view for those of you out there that may be wondering.

The stock market is essentially all about pizzas. The stock market is made up of just a whole bunch of pizzas, in our case we're going to just use three pizzas

What is the Stock Market

For the pizzas that we have, we've Pepperoni, Bacon, and the Orange, meaning you put some orange slices on it.

Within the world of the stock market, these pizzas are actually called companies, like McDonald's, Lowe's, Coca-cola, Home Depot, Apple, etc

You have lots of different companies out there but we're not going to call them companies we're going to call them pizzas and these companies get involved in the stock market for a single reason, they want to raise more money, they want to make more money

These companies that want to go public in the stock market, want money, they want to get money. So by going public, they open themselves up to offering pieces of themselves, offering slices of themselves to everybody.

By going public, the Pepperoni pizzas, they're going to divide up their company, they're going to slice it up like a piece of pizza and they're going to open that up to anybody, you or I

What is the Stock Market

If you're a big fan of Pepperoni pizza then you can now get a piece of this company. Or in our example a piece of this pizza. 

Like I said the whole point of going public is so that these companies can make money, so how are they going to make money by giving you a slice of their company, a slice of their pizza.

They're going to charge you money, that's how we're going to make money. Let's say they charge you a $150, so they give you a slice, but in the world of the stock market a slice is actually called a share

You now own a share of that company. Or you own a slice of the pizza and you paid a $150 for that slice or for that share. You are now a partial owner of that company, you've paid and you own a piece of the pizza.

What is the Stock Market

Let's go over to Bacon, Bacon now wants to go public and they want to make some money, so once again they're going to slice up their company so that can sell different slices to people.

Maybe you only have to pay $0.75, the price goes down because bacon is not popular like pepperoni, pepperoni is kind of a safe thing, everybody's heard of that so that's why they can sell their piece for $150

But Bacon, if they want to get money, raise money remember that's why they go public, people are probably going to be willing, maybe just to give it a try because bacon is not popular like pepperoni. They're only going to be able to get $0.75 per share

What is the Stock Market

The orange slice pizza want to get some money, they want to get out there and make some money, they're once again going to divide it all up

When I first said orange on a pizza, that might sounds terrible, yeah, it doesn't really sound that good but they got an idea, their theory is that putting orange slices on your pizza is going to be next level revolutionary thing, so if you're going to buy a piece of orange pizza, if you're going to get a share of that company

Hopefully you're saying I am not willing to pay that much because that sounds really risky, are orange slices on a pizza actually going to turn into something really good, like is a bunch of people going to fall in love with that, I mean pepperoni tried-and-true that's proven no need to even argue about it

Bacon is also sound good but orange slices, so if people want to get some of this action that should be $0.10 per slice, remember slices mean a share

Why is it so cheap, as we've been discussing that's a super risky investment to be making. If you are investing in a company that wants to put orange slices on pizza, I'm not saying it can't work but it's definitely going to be riskier so they're just not going to be able to get as much for that because people aren't going to find as much value in this sort of concept

That's what the stock market is, it's companies/pizzas that then slice themselves up and offer slices on themselves, but again those are called share so they're offering a share of their company which means if you buy a share, you're now a partial owner of the company

Obviously, it cost a lot more to become an owner of the pepperoni, a little bit less to become an owner of the Bacon and the pretty much dirt cheap to become an owner of the orange pizza.

How Do You Actually Make Money In The Stock Market

How do you actually make money in the market? above explanation is kind of the dynamic of how you can get involved, how the companies are broker down and what allows you to participate, but how can you actually make money

There's lot's of food channels out there so this orange slice company gets on these food channels like Gordon Ramsay, that's only food chefs I know, but there's a bunch of famous chefs, those food channels gave it a rave reviews and then you're watching TV and breaking news orange slice pizza is the greatest thing since sliced bread and everybody's talking how great it's

I mean it's all over the place talking about how great orange slice pizza is, now you're saying hey you know what I want a piece of that company, I want to go buy a slice

  • Do you think that the slice is still going to be for sale for $0.10? When Everybody's talking about how great it is. Heck no, the value on the orange slice pizza is skyrocketed, now if you want to buy a slice of that you got to pay $2

How did that price per share go up so much, again, when these people first bought it was very weird like $0.10, but now that everybody says it's great and you have all these great reviews, that's going to increase the value of it

Now, How do you make money

Well, for the people that bought at $0.10, will now sell it to you for $2

That's a pretty good gain, to buy something for $0.10 and then sell it for $2, now within the world actual stock market this can equate to millions upon millions of dollar and that would be what we'd call a great trade, a great investment

Let look at another example, let say you got a pepperoni pizza and bought for $150, but then all of a sudden, John Hopkins Medical Universit, Harvard University, Princeton University, etc. 

All these Medical Center' release a study and the study says pepperoni is the worst thing for you or is like just terrible in fact every bit of pepperoni that you eat decreases your life

What do you think is going to happen to the price of pepperoni? Do you think you can still go and buy a price for a piece of pepperoni for $150? Heck no, That's bad news for some people that bought a slice for $150, you could probably go pick up a piece of pepperoni for just $0.25

In the world of stock, we say wow that stock just drops in value. Those people that bought for $150 can only sell for $0.25. That was a bad investment, they are losing money on that investment because the news for pepperoni not so good

Whoever, orange slice piece is the next great thing and now those people are making a lot of money

That's how the stock market works, different events, different thoughts, different opinions, all sort of outside dynamics are going to fluctuate the amount that these slices of the pizza are worth or share of each company is worth

Some of them out can have control over, others may just come out of the left field.

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