What is the stock market? How does it work?

According to Investopedia.com… “The stock market refers to the collection of markets and exchanges where the issuing and trading of equities or stocks of publicly held companies, bonds, and other classes of securities take place. This trade is either through formal exchanges or over-the-counter (OTC) marketplaces.”

“Also known as the equity market, the stock market is one of the most vital components of a free-market economy. It provides companies with access to capital in exchange for giving investors a slice of ownership.”

The stock market plays an essential role in the global economy, creating a financial mecca of investing and making money from the companies that run the world. For most people, this is basically the entire extent of their knowledge about the stock market.

Even if we read a lot of definitions about the stock market, it really takes some effort to fully grasp what it is and if we can’t really fully understand it, why should we put our money on it right? As the say, never invest in something you do not understand.

Let me share you a nice video that can make you understand the stock market works and it is done in an awesome way that will definitely help you finally understand what seems to be a complex concept.

Watch this…

The local stock market ended up in a historic high today at 4,245 points! Not only is our local index on a high, it’s on a rampage. The historic high was also achieved in a relatively short time.

Volume turn-over was about 4 Billion bucks which is pretty decent but not great. It indicates that many Pinoys are not as invested as they should be and I reckon that a big chunk of those invested are through off-shore funds. A good target for volume would maybe be 10B or more with the bulk being average Pinoy investors so that we can reap the economic impact of a very lively stock market.

While there’s much to celebrate, I wish to remind people that the stock market is really for long term investors and it should be consistent with their investment objectives and risk tolerance.

Further, diversification should always be practiced as this remains to be a really good tool for risk management.  As I read somewhere, one should enter the stock market at the sound of alarms, and leave it at the sound of trumpets — or something to that effect.

Life is short, take some risk — calculated risks; but remain prudent. Happy investing!