Stock market beginners – What moves the stock market and stock prices?

what drives the stock market ?

What factors move the stock market? What about individual stocks? How do interest rates affect the stock market and what does this have to do with the Consumer price index and inflation?

Many people know that economic factors such as corporate profits and interest rates tend to influence the movement of the broader stock market. However, I found it particularly interesting to actually analyse how these factors move the market and whether one should follow such trends when purchasing individual stocks.

Corporate profits and GDP

A drop in the Gross domestic product (GDP), the market begins to fear a recession and a subsequent drop in corporate profits. With worsening economic conditions, the market may enter a recession resulting in reduced demand for many company’s products.

Following on from this, many company’s earnings will be affected and the corresponding company stock price will fall (rationale outlined below). Thus, when the GDP and corporate profits fall, the market will suffer.

Continue reading Stock market beginners – What moves the stock market and stock prices?

“Stock doesn’t know you own it” – Warren Buffett Video

This Warren Buffett video is taken from a question and answer session that he made to a group of MBA students at the University of Florida years ago.

Watching the speech in its entirety is very captivating as he is an incredibly switched on character but yet still incredibly humble and funny throughout.

Continue reading “Stock doesn’t know you own it” – Warren Buffett Video

The four basic options trading strategies and risk profiles

many options

I am going to describe the potential risks and rewards associated with the four basic options strategies.

Options are one of the most versatile trading instruments ever invented. They provide a high-leverage approach to trading that can significantly limit the overall risk of a trade, especially when combined with stock or futures. As a result, understanding how to develop profitable strategies using options can be extremely rewarding. The key is to develop an appreciation about how these investment vehicles work, what risks are involved, and the vast reward potential that can be unleashed with well-conceived and time-tested trading strategies.

The four basic strategies that are fundamental to your options trading knowledge are:

  1. Long Call (buying a call)
  2. Short Call (writing a call)
  3. Long Put (buying a put)
  4. Short Put (writing a put)

Continue reading The four basic options trading strategies and risk profiles

11 step guide to create a business plan to attract investment

Corporate finance

Whilst reading Getting started in consulting by Alan Weiss, I came across the following 11 steps to go through to create a business plan that is likely to attract investment. I have listed them below:

1 – Company Particulars – Make sure to note the name of the company, the address, the type of public or proprietary company that it is (eg proprietary limited liability company), and the contact details of the company.

2 – Officers and Shareholders – Include the names, addresses and positions of each of the relevant people.

3 – Brief Description of the firm – It is important to give a brief (1-2 sentence) introduction to the company. It should describe the products or services the company offers, the type of company and the target market. An example would be “Baker and McKenzie is an international law firm for medium to large organisations and specialises in mergers and acquisitions and environmental law.” Continue reading 11 step guide to create a business plan to attract investment

Six different types of public and proprietary companies

Corporate law

Following on from my blog on company characteristics, I thought I would write a quick blog on the different types of companies that are common today.

Companies are classified according to liability, size and where they are listed. We will discuss the first two and the resulting 6 common types of companies we arrive at.

Classification according to member liability

1 – Companies limited by shares (known as ‘limited liability’ companies)

Typically, members are usually shareholders and their liability is limited to the nominal (nominal capital is defined as the capital with which the company was incorporated) value of their shares plus any unpaid amount on their shares.

As an example, say you buy BHP shares at $10 for 100 shares, then your liability is limited so that if BHP were to be sued, it is limited to the $10 paid. This is sometimes conducted differently when you don’t fully pay for shares when the company floats. If $5 was paid and $5 was then owed on the shares, then the remaining amount must be contributed should it be called upon.

As we probably know by now, the significance is that shareholders are not liable for the full amount. This is known as the share capital method of corporate finance. Another method is by debt – going to a bank and asking for money to be lent. This is a different contractual agreement. Continue reading Six different types of public and proprietary companies

Opinions are my own – mostly.