6 Tips to Help You Understand the Stock Market
To understand modern business, you need to understand how the stock market works.
You can’t turn on the news without hearing about the stock market’s gains or losses for the day. And if those gains or losses are big, the story can overshadow all others. There’s a good reason for that. The stock market plays a significant role in driving the success and failure of modern business.
If you’re looking to start or advance a business career, you should endeavor to have a working knowledge of the stock market. Here are some tips to get you started:
The Stock Market Is More Than One Market
While the singular “stock market” is often used in conversation and even news stories, there are a number of different markets involved in the trading of stocks. In the U.S., the New York Stock Exchange is the dominant market for stock trading, but the National Association of Securities Dealers Automated Quotations (NASDAQ) also plays a significant role. Outside the U.S., nations such as the United Kingdom, Japan, Germany, and many others have their own stock markets, whose rise and fall can influence markets in the U.S.
The Stock Market Is Built on Trading Shares of Companies
While the rise and fall in stock prices can be complex, the basic system of stock markets is pretty straightforward. When a company lists itself on a stock market, it is agreeing to sell pieces of its company to investors. Each piece—a stock—represents a percentage ownership of the company. That’s why you’ll hear stocks referred to as shares. They are an ownership share of a company.
Companies Only Receive Money the First Time a Stock Is Sold
When a company decides to sell stock, that’s called “going public.” And companies go public because they want to raise money. That process is called an initial public offering (IPO). During an IPO, investors can buy shares of a company at a pre-arranged price-per-share. The company receives the money raised during an IPO but doesn’t receive any money when/if a stock is resold. However, it’s common for the company’s original owners to retain a large percentage of the shares, allowing them to personally profit on later resells.
A Stock’s Price Is (Theoretically) Tied to a Company’s Value
If you wanted to go in on a pizza with friends, you would likely agree to pay a percentage of the total price that matches the percentage of pieces of pizza you want (i.e. if an eight-slice pizza costs $16 and you want two pieces, you would agree to pay $4 for your share). The same principle underpins the value of stock. The more a company is worth (its “price”), the more a share is worth. The tricky part is determining a company’s worth.
The Market Sets the Value of Companies
How much any one company is worth in the market depends on how much the market thinks that company is worth. What does that mean? Think of it in terms of that pizza. Except, this time, the pizza doesn’t have a set price of $16. Instead, each person who wants a piece of the pizza has to place a bid for that piece, based on what they think a piece should be worth. If you think one piece should be worth $2 but the highest bidder is willing to pay $2.25, then the market value of that pizza is $18, rather than the $16 you assumed (and you don’t get the piece of pizza). To put it another way, a stock is only worth what investors are willing to pay for it, regardless of what a company’s “true” value may be.
The Market Is Hard to Predict
Each company listed on a stock market has thousands—if not millions—of shares available to buy, and there are millions of investors who could, if they wanted, make an offer. How each of those investors values a company’s stock depends on a myriad of factors, including a company’s most recent profit report; its long-term performance; the perceived volatility or stability within the company; the current trends in the larger market; political situations; the performance of the overall economy; and each investor’s own, very human decision-making process. Accounting for all possible variables all of the time is impossible.
How Can You Learn More About Modern Business?
The stock market is just one aspect of business. If you want to gain a greater understanding of how companies operate, you’ll want to earn a business degree. Specifically, a Bachelor of Science in Business Administration (BSBA) can help you develop the key business and leadership skills you’ll need to succeed in a business career.
If you’re concerned you don’t have time for a BS in Business Administration, you should take a look at online education. Through an online bachelor of business administration program, you can complete your coursework right from home. Plus, when you earn a BSBA degree online, you can enjoy the convenience of logging in at the time of day that works best for you, allowing you to continue working full time while you earn your business administration degree.
Knowing how business works, from understanding the stock market to knowing the leadership qualities most likely to promote success, can help you reach your career goals. Thanks to online learning—and online business degree programs—gaining that knowledge is more convenient than ever before.
Walden University is an accredited institution offering a BS in Business Administration degree program online. Expand your career options and earn your degree in a convenient, flexible format that fits your busy life.
Walden University is accredited by The Higher Learning Commission, www.hlcommission.org.