In January there was a major event in the world of stocks and investments. Because of Reddit, a message board and discussion website, GameStop stock went from $37 to $396 in 9 days; however, my bet is you don’t know exactly what happened.
R/wallstreetbets is the specific Redditt group chain that caused the major stock inflation. In January, they ganged up and decided that together they would all put in buy orders to buy the GameStop stock. This would quickly increase the value of the stock allowing for members of the group to make large sums of money. While the company itself did not change, as they did not all of a sudden sell more games, the price of GameStop stock went up 10 times. R/wallstreetbets played with the market and drove up the price of the stock in order to make a profit in the short term.
The company’s stock is still fluctuating to this day. In February it went down to $43, and so if a Reddit member waited too long, they really would not have made much money at all. Today it is back up to $143 but it is expected to continue going.
A stock is a very small part of a company which you personally own and have the ability to sell when you choose. Investing money in the stock market can be a risk because in order to sell your stock, you must find a buyer, and no price is guaranteed. However, if you understand the market, you can make good money.
Every company has stock. However, it is only public companies that sell their stock in the stock market. The stock market is simply where you buy and sell your stock similar to how you go to a boutique to buy a dress for an agreed upon price. Private companies can still sell stock but it is done through a different process which is not as easily accessible to the general public. Stock allows people to own different parts of a company and can be bought and sold millions of times a day. When stock is bought, money is put into a company, therefore valuing the company higher.
Emily Bennett ‘22 was really frustrated when the GameStop event took place as she felt that “everyone around me was talking about it and I could not contribute to any conversation because I had no prior knowledge on the subject.” Mr. Ryan Chiu, a new Dana Hall math teacher who has been interested in the stock market since he joined an economics club in middle school, states that the stock market “and some form of money management is important to understand… The stock market is just one piece of financial confidence. Money depreciates [so it is important to have] multiple forms of income and asset growth.” At Dana Hall students have the option to take three courses that teach skills regarding real world money: Introduction to Calculus and Statistics, Advanced Placement AP Statistics, and Economics.
To simplify the stock market, it is easiest to make a comparison to shoe trading sites such as GOAT or Stock X. These sites primarily sell limited edition or custom shoes like Air Jordans, Air Force Ones or Yeezys. However, the difference between these sites and a store like Nordstrom or Bloomingdale’s is that the prices of these shoes are not fixed. They change constantly depending on sizes and customers’ wants. If you take a look, many shoes that are size 6 or 7 are going to be a substantial amount more expensive than a shoe in a size 4 or even size 11 simply because more people are size 6/7 and so more people want the specific shoe. There are only so many shoes, and so if more people want something, the price of it will go up as the value of the item has gone up too. This is very similar to how the stock market works.
If you are looking to make a short-term investment, you need to look at the pattern of sales from week to week and make an assessment. You want to try and buy stock when you think that price is lower than it will be in the future and sell stock when you think the price is higher than it will be in the future.
The value of a share is directly dependent on the public company and the amount of people who want to invest in it. Some companies like McDonalds, trade stock for lower prices around $212.0, and have about 770 million stocks (or shares) available. These 770 million stocks make up the company’s 163 billion dollar worth. Other companies such as Berkshire Hathaway’s stock is worth more at $364,000.0 per share and so they have fewer stocks available (156 million pieces). This company is worth a whopping 568 billion dollars.
In simpler terms, think about a pie. If a pie has 8 slices that means it has 8 stocks available. If each stock is worth $2 then the pie as a whole is worth $16. However the price of the slice of pie is ever changing and therefore the price of a whole pie also changes frequently.
To list on the stock market, there are a few government rules that must be followed, but anyone can do it. The market is open for trading from 9:00am to 4:30pm each weekday.
Some people invest in stock for the long term, and others trade their stock weekly or even daily. There is no particular formula of knowing how or when to buy and sell stock. It takes practice, research and careful thought. If investing in the long term, you must look at the current and past value of the company and make predictions on what you believe the value of the company will be in 3 or 5 years.
Image source: MarketWatch
