An Intro to Stock Markets
Nearly everything we own was made by a company. The chairs we sit on, the computers we work with, and the phones we use; all were made by Ikea, Google, Apple, and the like. Even the foods we eat and the houses we live in came into being with the help of some large agriculture or construction firm. These companies are incredibly large and powerful, with billions in net worth. To the average citizen, they may seem overwhelming. How could anyone hope to control these huge forces responsible for shaping the economy?
However, anyone can own a company with just a couple dollars. That’s because companies, in order to raise money, will sell pieces of themselves in packages called “shares”. How much do these shares cost? A measure called book value shows what each share of a company should be worth based on factors like net profit and numbers of shares issued. However, their selling(market) value ultimately corresponds to what investors think the company is worth. New information like quarterly earnings is always being absorbed into the market and reflected in a stock’s price. For example, if a company releases an innovative new product, its market price will likely jump up because investors will predict that the company will do well and rush in to buy its stock(increasing demand pushes its value up). Investors should take note if a company’s book value and market value have a large discrepancy: the stock may be overvalued, and will likely become cheaper in the future.