In the1600s, the Dutch East India Company employed hundreds of ships to trade gold, spices, and silk around the globe, but running this massive operation wasn't cheap, they required huge capital in order to fund their expensive voyages the company turned to high net worth individuals of the country, they invested money to support the trip in exchange for a share of the ship's profits. This practice allowed the company to afford even grander voyages and increasing profits for both the company and the investors, and that's how the Dutch East India company unknowingly invented the concept of a stock market.
But today the stock market may seem complicated. So how do companies and investors use the market today? let's understand it by knowing the story of Bob. Bob started a burger place in his neighborhood with the help of his family and friends. he was doing well and soon he becomes famous, makes profits
and expands to all other cites in his country and now he decides to go international but he doesn't have enough funding to scale his business so, he files for an initial public offering or IPO of his company. This launches the company onto the official Public Market(stock market) and this essentially changes the status of his company from a privately held business to the public. When any company or individual who believes that the business could be profitable might buy stock and sometimes based on speculation, buying stocks makes those investors partial owners in the business, their investment helps the company to grow and scale as it becomes more successful more buyers may see the potential of the business and start buying stocks as demand for those stocks increases and So does their price it also boosts the overall value of the company. The company can further raise funds by selling the shares and invest or expand.
A company with a poor reputation or poor performance will have difficulty selling its shares if for some reason a company starts to see fewer profits the reverse can also happen if investors think their stock value is going to decline they'll sell their stocks with the hopes of making a profit before the company loses more value as stocks are sold and demand for the stock goes down the stock price falls and with it the company's value. This can leave investors with big Losses unless the company starts to look a profitable again this seesaw of supply and demand is influenced by many factors. Companies are under the unavoidable influence of Market forces such as the change in government or government policies fluctuating price of materials, changes in production technology and the shifting costs of Labor investors may be worried about changes in leadership bad publicity for larger factors,
Many businesses as Bob's gets listed on the stock exchange. The stock exchange is nothing more than a giant networked and organized electronic market place, more or less an auction house. where every day huge sums of money are moved back and forth by buying and selling stock by market participants(investors and traders). There are millions of market participants who drive the price of stocks so does the market index. Indices like the S&P 500 or NIFTY 50, represent the aggregated prices of a number of different stocks and it shows the overall performance of the country's economy.
One must do extensive research on the company background, what a company does to make money, whether they're in Good Financial standings, how efficient the Management and how successful they are when compared to their competitors before buying the company's stock. and investing in stocks based on speculations might cause loss.
Subscribe to Walth for more insights. (Well, Bob's story was over-exaggerated, but in reality, businesses develop, adapt well, and undergo many funding rounds before going public).