Read on Twitter
Feels like it might be time to put out another educational thread to get at a current events issue......
So here is a brief overview on what a stock and the stock market is, as well as what is the point of all this anyway
THREAD
1/19 https://twitter.com/RobinhoodApp/status/1354805613566410756
So here is a brief overview on what a stock and the stock market is, as well as what is the point of all this anyway
THREAD
1/19 https://twitter.com/RobinhoodApp/status/1354805613566410756
So a "stock" is simply a type of security that indicates a proportionate ownership interest in a corporation.
This type of ownership is actually quite old, deriving from the ho-pen companies of 7th Century China and the limited partnership companies of 13th Century Europe.
2/19
This type of ownership is actually quite old, deriving from the ho-pen companies of 7th Century China and the limited partnership companies of 13th Century Europe.
2/19
The original purpose of this was to create an ability for a company to grow beyond its existing capital through passive ownership.
Which is good. A company may have a lot of potential but not the necessary capital to grow to that potential. Stocks allow for this growth.
3/19
Which is good. A company may have a lot of potential but not the necessary capital to grow to that potential. Stocks allow for this growth.
3/19
Stock exchanges developed as a way for companies to raise these passive ownership shares.
Probably the most famous historical example of this was the Dutch East India Company, which in 1602 issued tradable shares on the Amsterdam Stock Exchange.
4/19
Probably the most famous historical example of this was the Dutch East India Company, which in 1602 issued tradable shares on the Amsterdam Stock Exchange.
4/19
By the way, these companies offering some sort of passive ownership, with liability limited to value of the money they have invested, are called "joint-stock companies."
Not all partnerships are the same, but if you see "joint-stock company" you know kinda what it is.
5/19
Not all partnerships are the same, but if you see "joint-stock company" you know kinda what it is.
5/19
So I said stock is ownership, and I think its important to explain that.
When you own stock you own the shares issued by the company and in turn the company owns the assets held by a firm.
6/19
When you own stock you own the shares issued by the company and in turn the company owns the assets held by a firm.
6/19
So if you own 10 percent of the shares of Company X you don't actually own 10 percent of Company X. You instead own 100 percent of 10 percent of Company X's shares.
Confused? Let me try to explain further!
7/19
Confused? Let me try to explain further!
7/19
Your stock share doesn't entitle you to ownership of the fiscal assets of the company. You can't walk in to Company X and act like 10 percent of their computers are yours to use or something.
It doesn't work that way unfortunately.
8/19
It doesn't work that way unfortunately.
8/19
Instead being a shareholder gives you the right (sometimes) to vote in shareholder meetings, the ability to receive a percentage of company profits (dividends), and allows you to sell your interest to someone else.
9/19
9/19
Overtime these public stock exchanges became more sophisticated and controlled a larger and larger segment of world economic interest.
Regular people, not just businessmen, started speculating on these exchanges in order to diversify their own assets.
10/19
Regular people, not just businessmen, started speculating on these exchanges in order to diversify their own assets.
10/19
Together the entirety of these buyers and sellers is called the stock market. This market is massive, representing roughly $90 trillion in assets. Yes trillion, with a "T."
And US markets dominate, representing about 46% of the global pool of publicly traded companies.
11/19
And US markets dominate, representing about 46% of the global pool of publicly traded companies.
11/19
But it is important to understand that the stock market does not represent the economy. Publicly traded companies represent a fraction of all businesses on earth.
And while publicly traded companies tend to be larger, they fall very far short of capturing all commerce.
12/19
And while publicly traded companies tend to be larger, they fall very far short of capturing all commerce.
12/19
In the United States there are well over 30 million separate businesses operating today.
But on the New York Stock Exchange and Nasdaq there are only about 6,000 publicly traded companies combined between both exchanges.
13/19
But on the New York Stock Exchange and Nasdaq there are only about 6,000 publicly traded companies combined between both exchanges.
13/19
So cool, you understand what stocks are and that they do serve a purpose to allow companies to grow. And that growth obviously can be beneficial to a lot of people, not just those who own shares but also those who benefit from a company's products.
14/19
14/19
But this market, like all markets, are predicated on trust. If there is trust in the business of exchanging shares then the market can thrive. And while clearly there are daily winners and losers the health of the market remains strong through clear transparency.
15/19
15/19
When trust is broken or guardrails on the market falter then this system breaks down. And while the stock market isn't equal to the overall economy, a breakdown in that system does have ramifications on how a healthy global economy can grow.
16/19
16/19
Markets break down all the time. As much as some economic wizard might tell you how professionalized and proper these markets are, that isn't always the truth.
Markets are fallible just like people are because markets represent human decisions and human doubt.
17/19
Markets are fallible just like people are because markets represent human decisions and human doubt.
17/19
What's important is when markets falter or even succumb to the famous "animal spirits" that Keynes wrote about that we reexamine what happened clearly, cleanly and openly.
It is only then that trust and a truly healthy market can be restored.
18/19
It is only then that trust and a truly healthy market can be restored.
18/19
