The Stock Market

Roxy's Mum

New Member
Jul 21, 2009
4,330
2
0
Dorset
Can somebody explain to me in plain words just how the stock market works & why at the moment it seems to be 'crashing' (if that's the right term?)

I've tried google to do a bit of reading but can't find anything that explains it quite how basic I'd like it to. Have read a lot about the crash in 1929 which was very interesting.

What I don't understand is why the market suddenly takes a turn? What makes that change, is it a gradual build up of events that then comes to a head? I understand the bull & bear market etc and that the market is constantly changing up/down and so on. But why suddenly a £50M loss?

And also I can't get to grips on what exactly the FTSE & Dow Jones is. Info I find says they're to do with indices, and while I kind of understand very basically what the retail index price is, I don't really understand it in terms of stocks & shares etc.

Anybody on here brainy enough to enlighten me?!
 
Far too complicated for me to grasp, but I do know it does have a lot to do with 'confidence', therefore the whole euro crisis., plus the total hash the Americans made of sorting out nearly defaulting, and the general flakyness of various currencys have formed a perfect storm, and it's all gone pants.
My husband does some share trading and there are people on the forums he visits who are saying they have been wiped out by this. (These are people who do spread betting which is very risky but can bring huge rewards.) One guy on the forum said that he'd lost everything, was sitting in front of the computer in tears and was bracing himself to tell his wife that he'd lost 50K. So it is really serious, but eventually it will sort itself out I guess. Before OH started trading, I naively thought that a companies share price reflected how well the company was doing, how much cash it had, what it's order book was like and how good it's management team was. Ha! Seems to me there is a hell of a lot of market manipulation that goes on which is probably barely on the side of legal.
 
lack of spending in shops/online,banks not giving loans out so much, bad debts, the euro going bust every 2 minutes coupled with the US money worries as well is some of the reason. I too dont understand the stock market but from what the beeb reports on breakfast this is my understanding of the situation.

I also dont think its an overnight thing either, it has been building for some time now i think.
 
I just don't see why they can't just print more money to get them out of the mess! :tongue:

No!! :wink: They probably will....but paper money has to be backed up with something. Have a look on google at what happened in 1923 in the weimar republic. (Hyperinflation is the fear.)

Although it has re-traced a bit today, this is why gold is doing so well. It's a tangible, finite resource that always holds up well in times of trouble. The UK used to have loads of gold but Gordon Brown sold it when he was chancellor when it was at it's lowest point. D'oh!
 
Lol, only thing I know about the stock market is that rubbish film they made with that Scottish chappie (Ewan Mcgregor?) and the lass that used to be in Brookside. (Anna thingy?!) she runs about during the film slapping her head and uttering things like "oh no, what are we going to do" and such. Twas about that guy who cheated the stock market and went to jail.
 
Lol, only thing I know about the stock market is that rubbish film they made with that Scottish chappie (Ewan Mcgregor?) and the lass that used to be in Brookside. (Anna thingy?!) she runs about during the film slapping her head and uttering things like "oh no, what are we going to do" and such. Twas about that guy who cheated the stock market and went to jail.

If they built a house made of cheese & crusty bread with a wine moat then all would be good
 
Hehehe. I've remembered her name it was Anna Friel. She had to have all her teeth "done" because they said unless she did she wasn't going to get many film parts.
 
For once, in the words of Victor Meldrew, "I don't believe it!" I finally think I've done something right re. money. TBH I don't get it either, financial matters make my brain hurt. However, as a couple hoving up on retirement in the not too distant future, we tried to do our best with savings and such. We took advice from a (free) financial advisor - as you are always being told you should, and try and use ISAs etc. As soon as we squirrelled our modest saving away whad'ya know - the first credit crunch struck!

Anyway our stock & shares ISA ended up going nowhere fast. I was so fed up with the poor performance, those ******** bankers and the fact that they still took all the fees and charges even when they were losing money that I suddenly wanted my dosh back. Had a quick chat to OH who had been thinking the same thing.

So a couple of weeks ago we decided to encash the lot, and it's now snuggled safely in a normal account while I search out the best interest rate I can find. SO relieved to got the money back to put into the 'normal' high street side of banking.

We don't have tons of money, but we worked blummin' hard for what we do have, and I don't want politicians or investment bankers losing it on our behalf.
 
It means I will have to work until I'm about 85 (stocks in my retirement plan down dramatically) :frown:
 
It means I will have to work until I'm about 85 (stocks in my retirement plan down dramatically) :frown:

Lol, you'll be ok, I was listening to the radio the other week and over here there is this guy who still works in a local garden centre and he's 86! Hehehehe, I told my Dad (who is 84) but I don't think he was impressed! He said he loves being retired...........Oh, and they're talking of raising the retirement age here too..........
 
I don't understand much of it either and haven't much interest in stocks and shares as at the end of the day they are all too risky for my liking.

I prefer to save using ISA and Bonds. Although Bonds etc arn't doing so great at the moment for putting in new ones. Land can be a good investment too which is what we are planning on doing later on.

My dad only had a modest wage but worked hard and used bonds to make his money work harder for him. He has ones that come out every few months which he can then re-invest or keep out if he needs it. (he is in his 70's now)
 
Tbay, unless you are going to retire this or next year you will be fine. It will only affect those who are cashing in their pensions now.

Remember we were still on false high after japan, bank crash etc, it never really dropped then, so it had to drop sometime. It is not as bad as everyone is saying ATM, and I mean ATM. We were still 15 percent up even after everything and we have not crashed down that 15 percent yet, so please dont worry too much, yet yet....
 
Can somebody explain to me in plain words just how the stock market works & why at the moment it seems to be 'crashing' (if that's the right term?)

I've tried google to do a bit of reading but can't find anything that explains it quite how basic I'd like it to. Have read a lot about the crash in 1929 which was very interesting.

What I don't understand is why the market suddenly takes a turn? What makes that change, is it a gradual build up of events that then comes to a head? I understand the bull & bear market etc and that the market is constantly changing up/down and so on. But why suddenly a £50M loss?

And also I can't get to grips on what exactly the FTSE & Dow Jones is. Info I find says they're to do with indices, and while I kind of understand very basically what the retail index price is, I don't really understand it in terms of stocks & shares etc.

Anybody on here brainy enough to enlighten me?!

I don't know all the ins and outs by any means, but my understanding is this:

The FTSE is what is used to describe companies in the UK share market. So you get groups of companies - the FTSE 100 for example is made up of shares from the top 100 UK traded companies and there are others which collect data from different groups of companies. The FTSE as a whole will cover all of the UK traded shares. Different countries each have their own name, so the Dow Jones normally refers to the US index.

RPI is a measure of inflation, so how much prices are rising. It's nothing to do with shares, it's based on certain items that we are deemed to regularly buy, with prices being monitored and compared so it can be seen how they are changing.

Share prices are based on what someone expects to receive from the company in the future. So, say you were buying shares in a company, you'd expect to receive income (dividends) in the future, plus at some point be able to sell your share and get money back for it. Given your money would only come back to you in the future, you've got to account for inflation, so I might pay £100 now if in the next 5 years I was going to get £120 back, for example. Noone can guarantee my future income though, and what I'm hoping for is that I buy £100 of shares now and I get, say £150 or more back, which would more than cover inflation and I'd make a profit. But the risk is that I only get £80 back and so make a loss.

Noone actually sets share prices though - it's market demand that sets them. So if everyone wants to buy shares in company A, their share price will increase because if there's high demand, there will be more buyers than sellers. Same as what happens with house prices - if there's loads of buyers around, some will always be willing to pay a relatively high price, so you can sell to them for more, which pushes prices up.

Equally, if everyone wants to sell shares in a company, their share price will drop. Where there's lots of sellers wanting to get rid of shares, they need buyers, so have to drop prices lower and lower until someone thinks they will get their money back if they buy at that price. So, if I think I'm only going to make £80 in future, I might only be willing to pay £60 now, not £100. If everyone does that, the share price will drop to £60. That can happen very quickly if there's any bad news surrounding a company.

What we've got at the moment is a lot of people who are worried about what the future will hold. The Euro is unstable, some European countries are on the brink of going bankrupt, the major UK banks have just released some awful half year profit figures, and the US has record amounts of debt. What were previously seen as relatively safe investments (though nothing is ever completely safe), are now considered much more risky. There is far less guarantee now of companies making enough money to pay back investments, so people are willing to pay less and less for shares. That could go on for days or weeks or months, depending on how everyone reacts to news of individual companies and on wider issues. The US jobs market announcement today for example did increase prices slightly, or at least stopped them falling. Right now the market is just very sensitive. Current news is also tending to impact either most business sectors or at least large business sectors in the UK, like the banks.

If everyone could just sit there and do nothing, share prices wouldn't be falling like this. Some of it is certainly panic selling which makes everything worse, but one of the main problems is if you consider who are the major investors in shares. Certainly in this country, individuals are a drop in the ocean - the major investors are the pension schemes. And these pension schemes have to continue to pay pensioners, no matter what happens. They need a regular income, which they've been able to get in the past from the relatively 'safe' equities such as bank shares, as they've had regular dividends. But as company performance drops, so do dividend payments, so the pension schemes can't rely on the income any more. So they end up selling thousands and thousands of shares so they can move their money to somewhere they can get a regular income. That move would often be to bonds (government shares), but then we have Greece, Spain, Portugal and Ireland all in deep trouble, so previously very safe government stocks are not really safe either now.
 
Last edited:
As above!
Exactly the more people who buy in a company the more confidence the higher the price.
When something in the world goes belly up everyone panics as they see their investments fall and take their money out... the result the shares become cheaper to buy and less money floating within said company...
EG As simple as I can make it
I work in barclays and when the banks crashed everyone started selling their shares in panic
(the shares are what keep companies afloat and give them cash to invest to make more money) .
Say they had spent £1000 for 100 shares those 100 shares were now only worth £600 and reducing so people panic and withdraw their money. The value of the company reduces and its a downward spiral.
Other people (me) buy some shares thinking now the shares are 20p each so I will buy £1000 worth (5000 shares) and when everything settle's down and people start buying again the share price goes up as their is more confidence.
So shares hit £3 and I now have 5000x£3 = £15,000. So sell.
But something might make me panic in the world economy, shares, take a down turn and i sell quick! and it starts all over again. ...
If the companies have no money to invest other companies close, people stop spending, banks stop lending, etc etc its a viscious circle...
 
As both above EXCEPT that it is never as simple as company doing well, stocks go up, doing badly stocks go down. For example, if a company is about to release news, or actually does release news which increases it's worth, those shady folk the 'market makers' will often artificially keep the price low in order for large institutions to buy in. It's quite complex and interesting. Or perhaps I'm just an anorak. :nerd:
 
Just a couple of points.

The stock Market is only the trade if second hand shares. The price of second hand shares has nothing to do with the value of a company and it's assets.

Most investors are not looking to invest in shares for the payouts. If they were then they'd go for dividends or bonds which get paid before that on shares. Most investors are speculative investors. This means they buy expecting the prices to rise so they can sell at a profit. The Market in second hand shares often bear no resemblance to the actual worth of s company.

Lastly on the subject if printing more money, that's some of what monetary policy ( think Thatcher) is based on. Trouble is that money needs to have a value which comes from rarity. If it's less rare and isn't worth as much as a result then people want more of it so prices increase anyway. So if you have twice as much money but prices have doubled (inflation) then you can nothing and confidence falls even lower.

Also don't just assume more money means more printed money, the banks create more money by loaning out more than they physically have to lend and this was more of a problem when Thatcher deregulated the banks. That's why the banking crisis was so serious. When the banks made bad loans that couldn't be related they didn't have enough money to cover it and so borrowed from other banks. They whole system could have collapsed like dominoes.

Another way to try and promote the economy to grow is to do what the Americans are going to do which is to borrow more with a view to spending it. The belief is that government spending on the right things (infrastructure for example) will stimulate the economy because the employed will have more money to spend and will spend it. Government won't have as large a welfare bill and someone has to produce the things the employed buy and they are taxed. All well and good if these are produced at home and aren't foreign.
 
Last edited:
newrider.com