Bulls, bears, investment firms, big banks: It can seem as if those in the know are talking in a language all their own. But the stock market is actually a fascinating place, and understanding it can help make investing less intimidating.
The stock market is a marketplace where investors buy and sell shares of publicly traded companies. When a private company first makes its shares available to the public, it’s called an initial public offering. Share prices go up or down as the company’s fortunes rise and fall.
Generally speaking, the stock market is run by intermediaries that match buyers and sellers of stocks. If enough people want to buy a particular stock, it can drive up the price, which in turn entices current shareholders to sell their shares at a profit. But if not many people are interested in a particular stock, its price might go down.
The stock market can also reflect wider economic trends, such as unemployment or a tax cut. That’s because large market factors tend to affect most or all stocks in similar ways, even if they’re not directly related to the underlying business. For example, a tax cut could encourage consumers to spend more, which could boost the earnings of companies that provide goods and services. And it may also spur on more hiring, which would give workers and businesses a reason to invest in more plants and equipment. That’s one of the reasons it’s often smart to use low-cost mutual funds or exchange-traded funds (ETFs) rather than individual stocks when you’re starting out.