How the Stock Market Works – Beginners

The stock market has been proven to be one of the best ways to become a financial success. Modern technology allows us to access the market a lot faster and have the opportunity to gain information about trades, stocks and companies instantly. With all this information, it might seem as if trading stock is easy, but one of the biggest mistakes people make at first is not learning what the stock market is and how it works.

This is the first step to finding out how you can become a stock trader and what it actually means to trade. To understand the basics of the stock market, we need to break it down and make it as simple as possible. Therefore, we’ll use simple examples and keep things on a smaller scale, allowing you as a beginner to understand exactly what the trading process is all about.

What are Stocks?

Stocks are shares of a company that you can own, meaning you’ll own a share of the company. This doesn’t mean you become part of the company or anything, but rather that you are investing your money in the company with the goal that it would become more valuable.

A simple example of this would be buying a piece of cake, it might be a tiny slice, but you own part of that cake. Now to get that slice, you need to be linked to a “store”, which in the trading world is known as a broker that’s available via telephone or the more popular option in today’s internet driven world is a trading website or app.

Why Own Stocks?

Doing your research on companies is important as it provides information about the company, where they’re headed and the future value of the company. The idea is to make money, “buy low, sell high”, meaning your slice of cake has to increase in value before it becomes worth selling.

Therefore, it’s important to research and determine whether the value would increase over time. Of course, it’s completely possible for a much higher price in a few weeks, months or years from now. Perhaps the cake is something new and expected to become very popular within the next few months, or it’s becoming rare, and people are prepared to pay more for it sometime soon.
The fact is, there are many reasons you’d want to purchase part of a company, but at the same time, there are just as many reasons (if not more) why the value of the stock could decrease.

Why Sell Stocks?

Owning a share doesn’t give you anything but an increase or decrease in value, meaning you can’t use the share to pay for your bills or purchase anything. However, you can sell the stock for a profit and use the funds you receive to pay for things or buy into a new company.

There are many reasons to sell a stock, not only relating to the need for funds, but also the future of the stock you own. For example, you’d sell a stock if the value isn’t expected to increase further or you think it might go down due to recent occurrences within the company.

Kevin Muir Alerts We only a Few Steps Away from Dot-Con Stupidity

We not at the “2000 levels of stupidity yet, but we are getting really close according to Kevin Muir. Business Week recently published that Muir said that darling of the bubble days, Sun was priced way beyond perfection, it was priced so far beyond it that is was head-shakenly-stupid. In 2009 after the stock reached $64, McNealy predicted that the stock would drop down below single digits before it was bought at -0.25% by Oracle for a sum of $7.4 billion. So, the big question is, will there be an overheating period for the stock market like it was back in the heydays of the dot-com days, and on this Muir says it is not time to sound the alarm although that day is moving closer.


Muir said that it is not near 2000 yet although he needs to acknowledge the numbers that never lies and by looking at the metric, we are but a few tricks away from matching the stupidity of the Dot-Con days.

Kevin Muir is a market strategist at East West Investment Management

Muir revealed in the April publication of Business week that the quote he loves the most is that of Scott McNealy on the Bubble and Regulation, he feels it shows how absurd the SUN Microsystems was evaluated at the high of the Dot-Con bubble, it was the time when trading was all about the system beasts.

The computers were the best in power, compared to the behemoths, Windows PCs were nothing they were toys. The SUN microsystem everyone believed would rule the world, the company priced for perfection was that of Scotty Mc Nealy, or as Muir now puts it, it was priced so far beyond perfection that it was nothing but stupid and insane.

Twenty-Eight Trades at Fifteen Time Revenue

He brings up Scott’s tweet as a reminder at just how absurd valuations were at the time. Twenty-nine stocks at the time traded above ten times their revenue during the dot-com mania, today Facebook is one of the 28 that traded at more than fifteen-time revenue, and that is actually over 50% above what the Sun Micro did during its peak.

What is ironic is that Facebook today resides at the old headquarters of the Sun. Muir says he can’t say that the social media giant will follow the same path but what he can acknowledge is that tons of investors will at some point in the future. Jesse Felder agrees with Muir and says that the stock market, today is as stupid and crazy as it was during the peak of the Dot-Com mania.

Air Transportation Prices Derailed

Air Transportation Prices Derailed

Air Transportation Prices Derailed

Air travel is increasingly becoming more and more expensive with less and less perks. Have you ever noticed that the taxes and fees cost twice as much as the actual cost of air transportation? Look at your travel receipt and you would know what I am talking about. It seems very unfair, right? What about the decline of the all-inclusive seat, that is, a free meal and 2 pieces of checked luggage included? Not long ago, you would be given an allowance for 2 pieces of 70 pounds each, luggage allowance. Present day, you are limited to 50 pounds, if flying economy class, and you may even have to pay for each checked luggage. Granted, 70 pounds may be too heavy to lift for the average person, but packing a suitcase with only 50 pounds can be hurtful when you take that long awaited vacation only to realize you can’t return home with the entire souvenir store in tow.

Fuel prices, competition, demand and supply are the four major factors that influenced these changes, with the first two factors accounting for the most damage theoretically. Every time a price fluctuates higher, airlines pass on the bill to consumers. Many articles will tell you that airline companies barely make any profit and some airlines use this fact to cram in more seats, destroying what little elbow room you once enjoyed before. The truth of the matter is, some airlines have indeed gone bankrupt while others have been merged, causing a lack of competition and incentive to gain sales. With two, sometimes three major airlines in a developed country and millions of consumers flying every day, airlines can charge as much as they please because options are limited to us, as customers.

Let’s put the fees into perspective. To fly a plane, you need to have fuel so you have the cost of fuel, you also need at least 2 to 3 pilots depending on the size of the plane and the length of your journey. Air stewards are also a must and for long haul travel and international flights, you would have food, drinks and snacks onboard. You would also have personnel working in varying positions, such as administration, IT, accounting, baggage handlers, mechanics and customer service representatives. Then you have the fees and taxes that are mandatory such as security, transportation tax, customs fees, immigration fees, international tax, facility fee or basically parking fee for using the airport, to name a few. Each fee may seem minimal when looked at it individually, but if you really sit and add them up together, they amount to a lot more than you would have bargained for.

Prices for air transportation would no longer be as low as before, only fluctuating based on the load factor, that is, amount of person needed to fill the plane. Airlines would lower prices to fill planes but this only happens when both demand and load factor are low. Knowing when to get cheap airfare is rather difficult but you may strike luck if you are flexible when you travel. In reality, business travellers and leisure travellers are the two types of customers that cause prices to fluctuate.