A stock market is the type of location where investors trade stocks. The prices of stocks constantly fluctuate as investors purchase and sell shares. The stock market can be a highly lucrative investment opportunity. Stocks have always been a solid long-term investment since they offer a better return than most other types of investments. Nevertheless, the stock market can be dangerous because stock prices fluctuate rapidly. This means that an investor can make a great deal of money if they invest in the correct stocks, but they can also lose a great deal of money if they invest in the wrong stocks.
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What Are Stocks?
A stock symbolizes a company’s ownership. Each share of stock represents a specific proportion of the corporation. If a corporation has 100 shares in total, then each share equals 1% of the company. You are the majority shareholder if you have 51 percent of a company’s shares.
People possess billions of shares of stock in extremely large corporations like Apple and Microsoft, and one Apple share represents less than one billionth of the corporation.
Why Do Corporations Issue Stock?
Typically, firms sell stock to raise money for expansion. They can avoid taking out a loan and paying interest by selling a portion of the company’s stock. The money obtained from selling stock is then utilized to hire additional staff, develop new goods, and construct new facilities, among other things.
Fascinating Facts About Stocks
1. Typically, September is the worst month for the stock market.
The September Effect is one of the world’s most fascinating financial phenomena. Since 1950, the Dow Jones and the S&P 500 have experienced a modest average decrease in September. Since Nasdaq began operations in 1971, its composite index has likewise declined slightly during this month.
The fact that such occurrences were unrelated to market events and news and continued to occur in stock markets around the world is what makes stock market statistics like this one so fascinating.
In recent years, the September Effect has begun to diminish, and September market falls are not as common as they were before 1990. Investors have begun selling stocks in August to prepare for the September Effect.
Since 1903, the New York Stock Exchange has begun each trading day with the ringing of a bell at 9:30 a.m.
Before 1903, the New York Stock Exchange rang a Chinese gong instead of an actual bell to signify the beginning of the trading day. However, since 1903, the New York Stock Exchange has rung an actual bell.
In addition to being one of the most intriguing facts regarding the stock market, this incident has also become iconic and well-known. The opening bell has become one of the world’s most-watched daily events.
Prior to President Ronald Reagan’s request to ring the bell during his re-election campaign in 1985, the ritual was not widely recognized or popular.
Since then, the NYSE opening bell has attracted celebrities, athletes, and CEOs of the world’s largest organizations. In the internet and social media age, it is today regarded as a prestigious accolade and a wonderful platform for exposure.
2. Due to a lack of male labor during World War II, women began working at the New York Stock Exchange in 1943.
During the first half of the 20th century, only men were permitted to enter the New York Stock Exchange, as was the case from 1792 to 1903. During World War II, the exchange was short of clerks and runners.
This momentarily allowed women to operate on the NYSE trading floor for the first time in the history of the renowned stock exchange. This continued through 1947.
In 1965, Muriel “Mickie” Siebert purchased a seat on the exchange and became known as the “First Lady of Wall Street.” Siebert was the sole female employee at the NYSE for the following decade, garnering her accolades and a space on the seventh floor named in her honor.
3. Until 2001, shares were traded with fractions.
This fact is astounding. Prior to 2001, the majority of stock markets, including U.S. stock markets, priced shares with fractions. You could purchase a share for $1.35. I cannot believe they delayed so long to adopt a decimal system.
The concept of fractional shares originates in Spanish currency. The Spanish currency consisted of gold doubloons. In addition, these doubloons were divisible into 2, 4, and 8 pieces. Why 8? Because they want that individuals could count them on their fingers. And for whatever reason, thumbs were not counted as fingers back then.
Initially, the New York Stock Exchange utilized this technique. The lowest price difference was 12.5 cents, which is really crucial to remember. Therefore, the spread could not be less than 12.5 cents. They determined that this spread was too large at some point, so they added 1/16 of a dollar (6.25 cents) to the system. In 2001, however, they changed to a decimal system. Currently, the smallest spread is 1 cent.
4. The Most Expensive Share Is Berkshire Hataway
The world’s most expensive stock is Berkshire Hataway.
It is currently valued at over £214 billion, making it three times larger than Pepsi or Coca-Cola.
5. The first stock market bubble occurred in 1720.
Many believe that the first stock market bubble occurred in 1720.
This occurred when John Law founded an investment bank and offered shares for it while also printing additional money to invest.
As a result, prices began to rise rapidly and wildly, and they also began to fall rapidly and violently.
However, this led to the occurrence of numerous such speculative bubbles during the subsequent century or so.
6. After crashes, the stock market tends to rebound pretty fast.
Numerous investors dread stock market dips and collapse, but it is futile to hope they won’t occur — they will. Intensity and duration will vary, but the news is not too bad on average. Capital Group analyzed the stock market’s performance from 1950 to 2019 and discovered that pullbacks of 10% or more (often referred to as “corrections”) occurred roughly once each year and lasted an average of 112 days. Approximately three and a half months. Even recoveries lasting twice as long, or approximately seven months, would not be that horrible. Dips of 15% or more occurred approximately once every four years and lasted an average of 262 days (roughly eight and a half months), whereas drops of 20% or more (“crash”) occurred approximately once every six years and lasted an average of 401 days (roughly one year and a month). Bear in mind that these are merely averages and that anything can happen, but that the stock market tends to rebound swiftly from most large declines. Remember that market declines can present long-term investors with excellent opportunities.
7. There have been several instances of bursting speculative bubbles.
It is easy to imagine that bursting stock market bubbles — speculative frenzies of skyrocketing values that finally collapse to earth — are unique to the modern era and modern corporations. Not so. There have been numerous similar frenzys during the previous few centuries. In the 1600s, Holland saw a tulip bubble, while in the 1800s, England experienced a bicycle industry craze. Many more instances may be found online with a little digging. There are also some excellent (and occasionally funny) books on the subject, such as Charles MacKay’s Extraordinary Popular Delusions and the Madness of Crowds and John Kenneth Galbraith’s A Short History of Financial Euphoria and The Great Crash of 1929.
8. Most corrections last less than four months.
22 of the 36 corrections in the S&P 500 lasted less than four months. The average duration of a correction was 196 days. However, the average is skewed by a handful of really vicious bear markets that lasted longer than usual (more on bear markets shortly).
Intriguingly, the average length of corrections appears to be decreasing over time. 11 of the 22 corrections (50%) between 1950 and 1984 required longer than 104 days to recover, and the minimum duration was 162 days. Only three of the fourteen corrections (21%) since 1984 lasted longer than 104 days; two were the infamous dot-com bubble and the Great Recession. In the past 35 years, four out of five incarcerations have lasted less than 3.5 months. That is hardly something to be alarmed about.
9. Volatility Increases During Market Corrections
When stocks begin to decline, volatility increases exponentially, not linearly.
The volatility increases tremendously. During market corrections, volume skyrockets when many investors fear and others see opportunity. Day traders, who live on volatility, increase their volume as well.
But the increased volatility is not caused solely by the volume increase. More shares swap hands, and the volume per trade also increases.
Professor of psychiatry and behavioral sciences who coaches hedge fund managers Brett Steenbarger noted on Forbes that volume increased by a factor of 2.5 during a 2018 downturn, while movement per trade increased by a factor of 2. Volume multiplied by 2.5 and then multiplied by two times the movement per trade yields market volatility that is five times greater.
What are the implications for investors? First, it implies that buying on margin should be avoided during market declines. When the market crashes violently, the last thing you want to do is get a margin call and be forced to sell at a loss. It also means that you can purchase cheap shares of fundamentally good companies that have suffered losses due to a general market decline.
10. Higher investment quality equals reduced risk.
If you invest primarily in well-established, dividend-paying firms, your investment and market timing errors will rarely result in significant or lasting losses. Spreading your money across the majority, if not all, of the five major economic sectors, will reduce your exposure to market risk.
On the other hand, your market timing abilities are likely to be crude and unreliable. They will never safeguard you against the hazards associated with investing in companies with faulty business ideas.
In addition, even the strongest market timing abilities are ineffective in safeguarding you from untrustworthy insiders. If we have cause to distrust the integrity of a company’s insiders, we will not invest, regardless of how attractive it may appear. These are the threats we concentrate on avoiding.
11. Short selling is a very dangerous short-term trading strategy.
The act of borrowing stock from a broker and subsequently selling it is known as short selling. However, you must ultimately repurchase the stock on the market in order to return it to its owner. If the price of the stock declines while you are “short,” you can buy it back at a discount, and then you have made a profit. However, if the price of the stock rises, you must repurchase it at a higher price than when you sold it, resulting in a loss of money.
Occasionally, attractive short-selling possibilities arise, but this is a difficult way to generate money. This is due to the fact that shorts confront a variety of disadvantages compared to purchasers.
First, short-selling returns are inverted: when you sell short, your maximum gain is 100 percent (if the stock you’ve shorted falls to zero). But your potential losses are endless. This is diametrically opposed to a conventional stock transaction, in which your gains are potentially unlimited, and your losses are limited to 100%. You must also pay any dividends announced by stocks in which you are short.
12. The current inflation rate is extremely high, so your purchasing power is being steadily eroded.
You ought to be quite concerned about this! Are you aware that your money in the bank is losing value? The consumer price index now indicates an inflation rate of 7.9%. This indicates that your purchasing power is diminishing rapidly. Let us examine this example. If the inflation rate remains at 7.9% during the next decade, $10,000 in your bank account will be worth only $4390. This likely causes you legitimate concern. Inflation rates have been closer to 2% historically. At 2% inflation, ten thousand dollars in ten years would have a purchasing power of $8,170, which is still significant. This suggests that cash is losing money. High inflation is caused by the Federal Reserve’s rapid money printing. When the government wishes to pay for anything, it can print money to cover expenses. This is the primary reason for inflation. Imagine if you or I wanted to purchase a vehicle and print money to pay for it. That would be considered forgery! The current high rate of inflation is a global phenomenon that was not always the case in the past.
13. The Bear and Bull comparison originated in California.
You have likely heard of bears and bulls in relation to the stock market. A bear is someone who wagers that the stock market will decline, whereas a bull wagers that the stock market will rise. But do you know why we utilize animals in this manner?
These names derive from the fact that a bear attacks from above and descends. And a bull is attacking in an upward motion from below.
The exact origin of these terms is unknown. The most obvious explanation, though, involves animal battles in California.
In California, bear and bull battles were held. These fights were Sunday after church celebrations for the town. There were numerous events and competitions, including horse riding. The main event culminated in a fight between a Grizzly Bear and a Spanish Fighting Bull. Bears were typically on the defensive during conflicts, whereas bulls were the first to strike. These conflicts may have inspired the bear and stock market comparison.
14. Dividend-paying Stocks Can Withstand a Recession
Even during market dips, a study published in Financial Analysts Journal indicated that dividend-paying stocks exhibited reduced volatility. The authors categorized stocks based on their dividend yield and discovered that high-dividend-paying stocks, with an average dividend yield of 4.3%, had much less volatility than both low-dividend-paying stocks and dividend-free stocks.
In fact, dividend-free stocks exhibited the highest level of volatility.
The same analysis discovered that high-dividend-paying stocks also generated larger returns over time — an average monthly return of 0.9% compared to 0.77% for dividend-free stocks. Contrary to the common belief that higher returns necessitate more risk, the stocks with the lowest risk, as assessed by volatility, had the highest average returns.
One reason for the decreased volatility is that dividend-paying enterprises tend to be more established and reliable. The dividend also provides a “floor” for the stock price; if the price falls, the yield increases, making the stock more appealing to income investors.
Final Thoughts
The stock market statistics clearly reflect the stability and prosperity of our globalized society. The Global Recession demonstrated to everyone how fragile and debilitating a big market downturn can be, hence highlighting the need to avoid such declines in the future.
