Cristiano Ronaldo made Coca-Cola lose about 3 billion dollars by crashing its stock. Tesla’s stock grew so much in the pandemic that it made Elon Musk the richest man on earth. Adani group's stock grew so much that he is currently the third richest in the world. Ever thought about what these things mean?
We all must have at least once in our lives, come across the word: Stock market. Some of us have heard about it, some of us know about it, some of us are involved in it and most of us fear it.
The stock market, in simple terms, can be called a place where buyers meet sellers, where all there is to talk about is money and where companies come to raise money and expand.
To summarise, the stock market is a place where companies sell their corporate equities to raise money for expansion by offering the public the same.
Why do companies need money from the public?
Companies need money to expand themselves. There are two ways of making money in the corporate world, either through Angel Investing or through Venture Capitalists. In both cases, companies give the investor a part of their equity to raise money.
In the same way, companies offer the general public a part of their equity, also known as their SHARE of the company in exchange for a certain amount of money...
This can be considered a win-win situation for both the involved parties as companies get the money for their expansion and the public can earn profits as the stock prices of the company shoot up as the company grows.
Since now we know what a stock is, let's talk about the fluctuation in the market.
Why are people scared of the stock market?
People are emotionally attached to their money, which sometimes leads them to make irrational decisions. Most of them, when they see a dip in the price, will pull out their money without even thinking about whether there can be a rise in the near future or not.
People are not scared of the stock market. They are scared of the fluctuation in the stock market. They are scared that if they do not pull their money back from the stock market at the right time, they will suffer a loss and THEY DON’T KNOW WHEN THE RIGHT TIME WILL COME.
So, why does the market fluctuate so much?
Everything in this world works on the principle of demand and supply. If the demand for a product is high and the supply is low then the price of the product shoots up and if it is the other way around, the price of the product shoots down.
Why do demand and supply change? Why can’t there be constant demand and supply?
Demand and supply rely on various factors. External factors include the appreciation of something by a famous personality or inflation and internal factors include the signing of a big deal or the raising of a huge amount of money or incurring a huge loss. Can all lead to changes in demand and supply
All of this leads to fluctuation in the market which can either increase the price of a stock of a company or decrease it
Now we know about the stock market and its fluctuations, let’s find out whether you should invest in it or not.
I would like to introduce a term here, COMPOUNDING. The literal meaning of compounding is to constitute. In the stock market, this term refers to the collection of all the principal amounts and the profits that you have gained. Compounding can lead to wonders if you let it take place over an amount of time.
For example, if you have a stock which gives you around 10% returns over a financial year, if you invest around 10 lac of rupees in it over a period of 10 years, after 10 years, you will have around 50 lacs of rupees in return, that means 40 lacs worth of profit.
So the main thing is
Whether you should invest in the stock market or not?
The answer is yes and no. You should invest in the stock market if you have enough patience and knowledge about the same.
No, if you are too emotionally attached to your money. The market fluctuates a lot and that is something we as the general public cannot change.
You need patience and knowledge to invest in the stock market. You just do not need
to be emotionally attached to your money.
There is a general practice in the domain of self-finance, where you save about 6 months of half of your salary and keep it somewhere safe in the form of liquid funds. Now you spend about 30% of what you earn and of the remaining 20%, you invest.
Written by: Arnav Puri
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