Question

The following are financial statements which are commonly heard. Comment on the veracity of those statements. (a) If someone makes money, someone else loses it. (b) Investing is nothing more than gambling (d) The stock market will always go up.

Answer 1

(a)If someone makes money someone else is losing it can further be explained when a person is find somebody it is obviously selling and when someone is selling there is somebody buying. This means that there will always be someone on the other side of the trade but the problem is in assuming that you are buying or selling to the same person every time on a par for par basis. Assuming that Raj is a farmer who who grows wheat. Raj sells the wheat on the future market to lock in his profit. This means that Raj has now profited from his expense labour and sale of wheat. Now anyone can buy the lead future from him and then sell it at a higher price to biscuit manufacturing companies who is now buyer. The other person is now profitable. The company makes the biscuit and sells to the grocery store at Higher price and then make a profit the grocery store sells it to the final consumer the future day trader or to Raj the farmer who Grew the wheat or any consumer now the grocery store makes a profit in this case as well everyone makes a profit. Now there are also cases while some people make money consistently in the market some others keep on losing money why people lose money. When there are losses in any transaction. Only that cases one person is making money and the other is Losing however this can happen at a particular point of time.

(B) Investment is nothing more than gambling it can be explained further - This reasoning causes many people too shy away from the stock market. To understand why investing in stocks is inherently different from gambling we need to review what it means to buy stock a share of common stock is ownership in a company it end titles the holder to claim on assets as well as a fraction of prophets that the company generates. Too often investors think of shares as simply a trading vehicle and they forget that stock represents the ownership of a company. In the stock market investors are constantly trying to access the profit that will be left over for shareholders this is why stock prices fluctuate Outlook for business conditions is always changing and so are the future earnings of a company. Accessing the value of a company is in Tennessee doctors there are so many variables involved in that the short term price movement appear to be random however long term a company is supposed to be worth the present value of profits it will make. In the short term a company can survive without profits because of Expectations of future earnings but no company can fool investors forever eventually a company stock price can be expected to show the true value of the firm. gambling on the contrary is a zero Sum game if Mayuri takes money from a loser and gives it to a winner no value is every created by investing we increase the overall wealth of an economy as companies complete the increase productivity and develop products that can make a lives better hence we should not confuse investing and creating wealth with gambling zero Sum game.

(C) The law of Physics do not apply in the stock market. Gravitational force to full stocks back to even. Over 20 years ago, Berkshire share price went from $7455 to $17250 per share a little more than a 5 year period . Had you thought that this stock was going to return twitch slower initial position you would have missed out on the subsequent rise to over $303,000 per share in the beginning of 2018. we are not trying to sell you that stocks never under grow correction the point is that the stock price is a reflection of the company if you find a great fun run by accident managers there is no reason the stock won't keep on going up. And hence can be briefly describe that stock market is merrily reflection of business stock market does not always go up but make no mistake about it let's say it a different way when a country has economic growth then their market prices when I country does not have economic growth then their business markets to not rise and the morning is lost so many countries goes with no economic growth and the United States is no exception each country has their own set of Geo political problems to include was the natural disasters and earthquakes sometimes simply natural events such as a bad weather can hurt a country and destroy its prosperity. Investment in stock market may cause significant losses that the investor must be willing to wear with no absolute possibility of recovery.