How The Stock Market Works

Once upon a time in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers, seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as supply started to diminish, they became harder to catch, so the villagers stopped their effort.

The man then announced that he would now pay $20 for each one. This renewed the efforts of the villagers and they started catching monkeys again. But soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey, much less catch one.

The man now announced that he would buy monkeys for $50! However, since he had to go to the city on some business, his assistant would now buy on his behalf.

While the man was away the assistant told the villagers. "Look at all these monkeys in the big cage that the man has bought. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up all their savings and bought all the monkeys.

They never saw the man nor his assistant again and once again there were monkeys everywhere.

Now you have a better understanding of how the stock market works.

 

The Stock Market Explained Simply: Finance and Investing Basics - Animated Film (1957)

 

Michael Johnson says: “Very few people enter that industry with the express purpose of enriching others, and they’re good at what they do, which is enriching themselves.”

 

The ABC's of the market

 

How The Economic Machine Works by Ray Dalio

 

What Bernie Madoff couldn't steal from me

 

Shlomo Benartzi: Saving for tomorrow, tomorrow

 

This is always good for a listen when your non compos mentis..

 

I can recommend a classic book on the stockmarket ;

Where are the customers yachts? Fred Schwed Jr. Plenty of good laughs too, first published 1940. Things don't change.......

 

http://www.asx.com.au/data/acceptable_stocks.pdf

 

Thanks TF

I obtained a copy of this as an audiobook and have listened to Chapter 1 so far

 

Hi Willair

This was an interesting read

25 Years to Bounce Back? Try 4½

By MARK HULBERT

 

From Reddit

So What is a Share?

We can easily look up the definition of a share, and find that it's "one of the equal parts into which a company's capital is divided, entitling the holder to a proportion of the profits." Sounds easy enough, but for those who don't have a solid accounting or business background (i.e. the common investor), this is far less clear than one might think.

I've often seen the mistake of 200 shares being ipso facto "better" than 100 shares. While some might laugh and say those people are foolish, this belief is surprisingly prevalent. I know many who view the share price as being indicative of how "good" a company is. It's fairly commonplace to think that Company A, priced at $50/share, is a better company than Company B, because it's at $20/share. Sillier yet, people will avoid Company A, because it's "more expensive" than Company B (at least on a per-share basis). People fail to grasp that when you buy a share of stock, what you're really doing is buying a piece of that business. Owning a share entitles you to claims on the cash, assets, and future profits (and losses). Put more simply, a share is nothing more than a percent ownership of a company.

To make it easier, think of it like a pizza. Would you rather have 1 slice of a pizza pie or 12.5%? Well, that all depends on how many slices are cut from the pie. If the pie is only cut into 4 slices, then 1 slice represents 25% instead of the measly 12.5%. Extending this same logic to shares of a company, we now know that the actual number of shares really doesn't matter. What does matter is the percent of the business a share represents. All things being equal, 1 share of a company with 100k total shares available is very different than 1 share of a company with 10k shares

 

The rating company, Chant West, offers the following key points about the 12 asset classes for the 2014/2015 financial year:

• Unhedged international shares was the strongest sector delivering a massive 25.2% for the financial year, although about two-thirds of that performance was due to the depreciation of the Australian dollar (falling from $0.94 to $0.77). Removing the currency effect, the return on international shares (hedged) was 8.5%. Translating this data into practical terms, according to Chant West, the drop in the Australian dollar added 3 percentage points to the overall annual return of 9.8%!
• Australian listed property delivered an impressive 20.2%, while international property delivered 9.1% for the financial year.
• Australian shares was the worst performer among traditional asset classes, delivering 5.6% for the financial year, while the worst overall performer was hedge funds (not in table) with a 3.3% return.
• Unlisted property gained 10.6% for the financial year, and unlisted infrastructure also delivered a double-digit return of 10.1%. Global listed infrastructure delivered a 6.7% return.
• Australian bonds delivered 5.6% for the 2014/2015 financial year, likewise international bonds.
• Private equity delivered a hearty 20% for the year.
• Cash delivered 2.6% for the financial year.

 

The Sad State of the Financial Web, in 10 Charts

More graphs on the link

 

Franking Credits

 

This game will show you just how foolish it is to sell stocks right now

Game

Do you think you can beat the market? Really?

Let’s pick a random 10-year history of the S&P 500 and see if you can spot and avoid the downturn, as the chart progresses through time below.

You’ll start with $10,000 invested. Hit “Sell!” when you think that you should take your money out of the market. Hit “Buy!” when you want to get back in. Quartz economics reporter Matt Phillips will taunt bark reminders your way. Be careful, in this game you can only buy and sell once.

Enjoy

 

The below provides links to the forum postings of author Taylor Larimore's Investment Gems. The gems are selected as a quick way to learn many of the best ideas from the best authors, and to help you decide if the book merits further reading.

Taylor Larimore's Investment Gems

 

How The Stock Exchange Works (For Dummies)