Posts Tagged ‘Market’
How the Stock Market Works
Posted by admin in loanstocks on January 21st, 2010
Let’s imagine that you want to start your own pizza shop. Now starting the pizza shop would require some investment.
For example, you would be investing in equipments, land, furniture, food supplies etc. All the money that you invest to start your pizza shop business is called as capital. Let’s say, you would be requiring the investment of $2000 in order to start your pizza shop business.
But what will happen if you do not have the investment of $2000 in order to start your pizza shop? In that situation, you have 2 options.
You would take a loan from somebody that need to be paid with interest. Or,
Issue stock (or share the ownership in the company) to people who may be willing to invest in your pizza shop in return for a proportional share of profits that your pizza generate.
Okay, let’s take both the situations one-by-one and find out the advantages and disadvantages with them.
Disadvantages
It is not very easy to take loan. In our example, if we want to take loan from anybody, then the first thing we would be doing is to convince the person that his money is safe and we will be able to return his money back. The person who is giving us loan would certainly be interested in knowing about the future plans of the business and lot more things.
Next, we will have to return all the money that we have taken as a loan with interest. This interest would increase as the time passes. The more time we take to repay the principal amount, the more interest we would be paying.
Advantages
You do not have to share the ownership of the company.
Issuing Stocks
Advantages
A company can raise more money than it can borrow.
You do not have to make periodic interest payments to your creditors.
And you do not have to make the principal payments.
Disadvantages
You have to share your ownership with the other shareholders
Your shareholders have the voice in company’s policies that affects the company operation.
So we can say that…
Companies sell stock (pieces of ownership) to raise money and provide funding for the expansion and growth of the business. The business founders give up part of their ownership in exchange for this needed cash.
The total number of shares will vary from one company to another, as each makes its own choice about how many pieces of ownership to divide the corporation into.
One corporation may have only 2,500 shares, while another may issue over a billion shares such as IBM and Ford Motor Company.
The very first sale of stocks to the public is called Initial public offering (IPO) and occurs on primary market.
A Look At Some Important Stock Market Basics
Posted by admin in loanstocks on January 20th, 2010
Investment beginners can be confused as to where to invest their money because of the sheer size of the stock market. It appears to many people as a huge amount of options without any clarity to direct them in the investing process. Education is definitely the way to go when trying to understand what actually happens in the stock market at all times. Education will help make this process an easy, logical way to make the decision on how to invest money. This is the one thing that will alleviate the stress and anxiety associated with investing in the stock market.
There are two main attitudes that a newcomer to the stock market may have: that the stock market is a form of gambling, or that it is a golden opportunity. In the first case, personal experience or advice of friends or family members has led the person to believe that there is nothing good that can come out of the stock market, and that no matter what happens, the market will come out ahead in the end — after all, you can’t beat the house. In the “go-getter”, golden opportunity case, the person feels that the stock market is a silver bullet that they feel they must take advantage of, even without knowing the details. This is even more dangerous than those who feel the stock market should be avoided altogether, as they often will place blind trust in their stock manager’s judgment. In both cases, more education about the risks and rewards of the stock market is needed.
Every economy is, essentially, based on business. Most large companies began as small businesses that grew into profitable behemoths. These giants are able to raise capital by selling stock in their enterprises to people who are willing to invest in order to make their own futures financially secure. When a small business needs to grow, it faces the problem of finding enough money to expand its operations. Businesses can generate money by borrowing: they can take a loan from a bank or from a venture capitalist (someone who is willing to invest in a business because they expect to receive a high return on their investment). They can also utilize a gain from another business investment in order to get the cash needed for expansion. Most businesses try to finance their expansions by taking out loans, but banks don’t lend money to just anyone. There is no guarantee of a loan.
Business owners looking for funds for expansion but not wanting to pay exorbitant interest on loans often go to the stock market. They issue stocks which allows them access to money that does not have to be repaid in return for giving up some control over how the company is run. When a business does this for the first time, it is referred to as “going public”. The more money that comes in, the better the chances for expansion and the better chance an investor has to see his investment grow.
If you are planning to invest some of your hard-earned cash into the stock market, learn the basics of investing and do some thorough research in the companies that attract your interest. The first step is carefully gathering information about a business you like for investment and then evaluating that information to make a wise choice.
Why is the Stock Market so Worried About Some Bad Mortgages
Posted by admin in loanstocks on January 18th, 2010
Beginning in the Spring of 2007 the stock market reporters discussed some problems in sub-prime loans and predatory lending practices by some mortgage companies. At first the stories were merely in passing, but as the months rolled by the story became front page news. The President of the United States, China’s financial network and the Chairman of the Federal Reserve have weighed in on what is supposed to be a small percentage of no credit borrowers reneging on their mortgage. So why is everyone so worried about some lousy mortgages?
The simple answer is that the old fashion mortgage with your friendly Mr. Cribbs at the bank downtown is on the endangered species list. The mortgage market today spans the globe. Within days, weeks and months of a mortgage closing it is sold all over the world in bundles of commercial paper.
This complex network of holders of the note are bought and sold by financial brokers, and a others who make these commercial papers part of their portfolio. The problem occurs when trying to determine who bought the risky, defaulting loans. Some of the loans are in the process of foreclosure, some are at risk for foreclosure and still others are foreclosed. The real problem here is assessing risk to unknown factors. Banks, lending institutions and mortgage companies do not like speculation on risk.
The most significant effect all of these risks have effected the Stock Market is the tightening of the credit market. Some banks and mortgage companies have simply stopped making loans. Others, have made refinancing and new loans with increased restrictions. The credit market is squeezed and that effects big stock market players like banks and financial institutions like Bear Sterns. It also effects consumers who are seeking refinancing and new mortgages.
Within the period of several weeks in late August, 2007 the Federal Reserve dumped billions of dollars into the prime lending market making it easier for banks and lending institutions to make loans and to back their existing position. In addition, the Federal Reserve dropped the interest rate for prime loans to major financial institutions. The next meeting of the Federal Reserve could see even further drops in prime rate interest rates.
With equal vigor to jump on the band wagon, the President of the United States provided the possibility of legislative help for those unsuspecting mortgage holders who were snickered into making bad loans with adjustable rate loans that were predatory in nature. The problem is how can United States legislate bad loans and notes that may no longer be in the United States. Remember, Mr. Cribbs is nearly extinct.
At the present time it appears that there are some bad mortgages out there. Some are held by people with limited income and little credit. Some are held by speculators and house flippers that got caught in the head lights of a slowing real estate market. For the latter mortgage holder it does not appear there is too much sympathy for their financial crisis. The common thread is that no one seems to know how many bad mortgages are on the loose. The stock market hates uncertainty, so that is the reason for all the worry.
The stock market is like my dear old Aunt Nell. She never married and never had a light bulb in her apartment house that was in excess of 40 watts. Her tenants virtually lived in the dark. If the price of milk went up two cents she switched to powdered milk. If her taxes went up a dollar she felt she was on the verge of being destitute.
Summer visits with Aunt Nell were a real hoot. In a nutshell that is what is going on with all the “sky is falling” on Wall Street. Uncertainty moves the market and what is causing on all flutter in the financial stocks.
To assuage all the “Chicken Littles” an the possibility of some real problems both the President of the United States and Chairman Bernanke sang a tune of, “You can’t always get what you, but if you wait sometimes, you get what you need.” No big rescues for speculators, but the promise for a few bones if the economy goes sour.