Why Stock Market Exists: Non-TextBook Explanation for Beginner

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Stock market is just a place where entrepreneur meets investor. When these entrepreneurs plan for business expansion, they will look for financial resources whenever available. Apart from borrowing money from banks with interest payment, they can now trade ownership of their company to public in exchange for cash.

For example, after raising from stock market, his/her ownership of the company will no longer be 100%. Instead, it will be diluted to… maybe 50% or less; which the rest belongs to whoever bought the share. Then, whenever the company make profits or lose money, the entrepreneur will only assume 50% of it.

Security exchange like Bursa (Malaysia) or Singapore Exchange or SGS (Singapore) will do their best to make sure the company that going to be listed in their local bourses are quality enough. When they passed the security exchange examination, they’ll start promoting their shares in exchange for cash; which also known as Initial Public Offering (IPO).

After the IPO successful, the company’s share price will start ‘floating’ and open for others who failed to secure the share during the IPO bought them in open market. It’s just like when a property launches sold out, you can easily find the same property ‘up for sale’ when it just completed.

Unlike property for sale upon completion, share price can easily tumble right after IPO. In fact, there are stocks that still trading below the IPO price (like AirAsia & Astro) despite been listed for several years now. This can happen if the companies’ profitability lacks of essence and yet investors are so optimist about them probably because of their strong brand name.

Therefore, researching good stock worth investing is so important. Guess what, the dark side of stock market haven’t unleashed yet…

Despite the fact that there are noble and genuine entrepreneurs who exercise stock to raise money for business extension, there are some who use it as ‘exit strategy’. Meaning, they’ve been building their businesses just to get listed in stock market. After that, it’s none of his business because their ownership had been diluted already.

In fact, there are CEOs out there who start to own luxurious properties, flying with own private jets and driving modern sport car upon their company listings. Regular shareholder like us who normally don’t know about it will easily fell victims.

If you have keen interest investing in stock market, you must figure out what makes them raising money from stock market and not just simple borrowings from banks? Is it because the risk is so huge that the CEOs wouldn’t want to risk themselves, or the profit margin is so thin that results to negative cash flow if paying interest rates, or to get listed just to get some strong worldwide brand name, etc..?

You need to know this for IPO.

**p/s: this is the beginning of stock market investing lessons aimed to teach aunty Fatin. If you are interested to follow future lessons for free, subscribe my rss feed to keep yourself updated. Don’t forget to bookmark this post if you plan to revise back in the future.

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6 responses to “Why Stock Market Exists: Non-TextBook Explanation for Beginner”

  1. Marian Avatar
    Marian

    Oo..now I undestand. TQ mommy for sharing!

    1. Mommy Lyna Avatar
      Mommy Lyna

      welcome! 😉

      TQ for reading hehe.

  2. mama emma Avatar

    ayoyo.. xleh continue nak baca… tlalu byk fakta yg otak akak xleh nak digest…

    nampak sgt haku x minat duit dgn jln senang.. miahaha!!!!
    .-= mama emma´s last blog ..-ANOTHER SUCCESSFUL JOB- =-.

    1. mama emma Avatar

      baru sedar salah statement…

      patutnya… “nampak sgt haku x minat duit dgn jln susah.. miahaha!!!!”
      .-= mama emma´s last blog ..-ANOTHER SUCCESSFUL JOB- =-.

      1. Mommy Lyna Avatar
        Mommy Lyna

        hehe patutla. saya mengambil masa yang lama utk berfikir tang mana yang senangnya hehehe.

  3. babycomel Avatar
    babycomel

    gud info lyna…

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