The stock market is people buying and selling companies based on how much they think those pieces will be worth in the future. The New York Stock Exchange is the top ranking stock exchange that has a physical location.
It was founded in 1792 when 24 stockbrokers assembled together.
“Nasdaq is like the little brother of the New York Stock Exchange.” It was founded in 1971 and does not have a physical location. All trading is handled manually.
A lot of sheer prices are being collected and transformed into one clean number. The S&P 500 Index tracks 500 of the largest companies on both exchanges. Dow Jones Industrial Average tracks the 30 companies they consider the most important. For example, AT&T was replaced by Apple in 2015. Big American indexes are Dow Index and S&P 500 Index.
Other countries have their own indexes to measure their own stock markets. The biggest companies are being publicly traded.
If you allow the public to buy shares, stocks will grow rapidly. The stock market provided investment opportunities for everyone, whether they were an average or wealthy citizen. They create innovative products around the world. You can build a fortune by trading stocks if you play it right.
Wondering how you can do that?
Well, you need to have a careful analysis of a company, invest in value, and look at their business. If you don’t have time for that then, “buy a S&P 500 low-cost index fund” says billionaire Warren Buffett. Buffett has a net worth of around $84 billion.
Index funds put a little amount of money in all companies within the index. One popular strategy for picking stocks is picking what other people think is going to bring them money. People believe the most popular stories and are willing to invest in that.
Economist Robert Shiller states, “When the stock market bubbles burst, it doesn’t just hurt investors, it wreaks havoc on the whole economy. Millions of people can lose their jobs, companies go under, and pensions get pummeled.” The economy is getting hurt by investors making money.
In 1973, President Nixon stated that we have headed towards the most acute shortages of energy since World War II. Prices have risen dramatically and showed that something was wrong with the economy.
Milton Friedman said, “Because corporations were owned by shareholders, the only obligation the business had was to make profits.” CEO’s would put more money towards things that would increase their stock prices in the short term. They would either cut cost or buy back their own shares to decrease the supply and bump up the price.
“In 2012, the Wausau Paper Company was making investments to switch its factories from making printing and writing paper into making tissue paper,” says Estelle Caswell. “A hedge fund brought up a majority of the shares and the company was pushed to cut costs.” This meant that 450 workers were left with no jobs.
Hank Newell expresses his concern saying, “We’ve evolved a much shorter term view on shareholder rights versus a longer-term view on stakeholder responsibilities.”
This trend of focusing on the shorter-term view on shareholder rights is threatening the ability of corporations to pursue projects that can lead to long-term sustainability and economic growth.
Laying off workers, closing factories, and keeping wages low are bad for the economy, but great for companies to make short-term profits off of. That is what causes the stock market. As the stock market grows, CEO paychecks grow even higher.
The CEO’s paycheck was 271 times more than an average worker in 2016.
Now, the stock market allows you to decide what companies deserve to succeed and gamble with what ideas are worth investing in. As a high school student, what you can grasp from this is that although there are many positive and negative outcomes, the positives definitely outweigh the negatives if you are looking to invest long term.
If you have a Netflix account, search up “Explained” and click on season 1 episode 7 to watch “The Stock Market, Explained.”
If you do not have a Netflix account, then don’t worry! Go on YouTube and search up “Explained | The Stock Market | FULL EPISODE | Netflix.”
