Nordicsupreme
New member
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- Mar 12, 2025
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Dear Family,
Today, I will cover a rather basic topic, as I realized the previous discussions focused more on the heavier concepts rather than properly addressing the basics.
First, I would like to make a distinction between investment and speculation in the stock market. Then, I will share an example of a famous Zevist figure from the past who got caught up in the nature of mass speculation by market participants.
What is a market?
For most of our daily dealings, we often visit the marketplace, which happens to be either a virtual or physical space where the exchange of goods and services takes place in exchange for consideration (in the form of money, or, in earlier times, a place that allowed "barter," i.e., the exchange of goods). Similarly, without over-complicating things, we can think of the stock market as a place where investors, traders, or others can buy or sell equity shares and other forms of investments (the types of investments available have been covered by @Edward666 in his post on Finance Session - Post 3).
The market participants in such a market include:
Equity Shares are a part of the company that is available for market participants to buy/sell, giving them voting rights in the company. There are various kinds of shares, which will be discussed in upcoming topics under various types of investment avenues, along with their benefits and limitations.
What is the purpose of an equity share? Why would a company choose to share a part of its ownership with the world? For any company to grow and/or continue its operations, it needs money. There are various sources through which a company can raise this money. It can be sourced through a money-lending agency like a bank, which charges a fixed or flexible rate of interest on the money lent, or through inter-company deposits, or by issuing debentures/bonds, which again equates to fixed interest payments to be made to the lenders. Issuing a part of the company for sale through equity shares avoids these fixed installments that the company would otherwise need to pay.
Example: Let’s assume ToZ Industries is valued at USD 1 billion, and we decide not to take money from enemy-controlled banks. But we need around USD 100 million to set up new projects in new countries. One way to go about it would be to dilute 10% of the ownership of ToZ Industries and issue 1 million shares on the open market, valued at USD 100 each. This way, we can raise USD 100 million for our project, and the investors would become part of the ToZ Industries family. What the investors would then be entitled to is the appreciation in the valuation of the company, instead of fixed timely payments to be made in a financial year (which are only a percentage of the amount lent in the case of debentures or loans).
What we see on the NYSE are these stocks being traded by market participants. An equity share that is issued for the first time by an organization is known as an First/Initial Public Offering Once it is traded amongst investors, these equity shares are no longer considered an IPO. Example in the real world: A farmer might sell directly to customers, and this would be known as an Initial Public Offering. In case a customer then sells these to another person, this is not part of an IPO but part of a normal trade activity.
What is an Investor and a Speculator? Going with the previous example, a person who believes in the success of the new project by ToZ Industries and invests to be part of the long-term initiative and sees themselves as a part of the company would be called an investor. A speculator, on the other hand, might have no idea what the company deals in and would have invested in the "hopes" that their money will increase. Informed money decisions need to be made before buying or selling equity shares. Always try to be an investor or a trader rather than a speculator. A speculator, in most cases, acts like a gambler, betting his chances at success.
As you might have understood now, the market you see has different market participants who work for individual goals and may or may not be informed about the decisions they are making. In case a hype is created around investments, there can be a mania among investors to acquire a particular investment type so as not to miss a once-in-a-lifetime opportunity (this happens a lot more than we care to believe). The market runs primarily on fear and greed. This can lead to the price of the said investment "bubbling" up to multiples of its original value (The Guardian article). In such cases, when this bubble bursts, there is a crash in the value of the said investment. However, in many cases, the intrinsic value of the stock was never that much to begin with!
Example - A Zevist who fell prey to this mass greed and fear ruining the value of his investments is Sir. Isaac Newton and his investment in South Sea Company.
For the part underneath, I have taken the help of Online Sources to avoid misquoting any aspects of the case
The South Sea Company was a British trading company that had exclusive rights to trade with South America, and in the early 1720s, people went wild over the idea that it would rake in huge profits. As a result, its stock price got massively inflated, and this period became known as the South Sea Bubble. Newton jumped into the action pretty early on and actually made a lot of money as the stock price shot up. It was all looking great for him at first. But then, as often happens in speculative bubbles, the hype wasn't backed up by real profits. More and more people piled into the stock, and eventually, reality hit. The price crashed in 1720.Freaking out about losing even more money, Newton sold his shares at a much lower price than he’d originally paid, wiping out a good chunk of his earlier gains.
This is where is famous quote comes from: "I can calculate the motion of heavenly bodies, but not the madness of people."
Price of shares when he entered and exited:
1) https://webarchive.nationalarchives...archives.gov.uk/the-south-sea-bubble-of-1720/
2) https://www.historic-uk.com/HistoryUK/HistoryofEngland/South-Sea-Bubble/
I hope this session was Informative and Fun for the readers
Take Care
Hail Zev and the Gods!
Today, I will cover a rather basic topic, as I realized the previous discussions focused more on the heavier concepts rather than properly addressing the basics.
First, I would like to make a distinction between investment and speculation in the stock market. Then, I will share an example of a famous Zevist figure from the past who got caught up in the nature of mass speculation by market participants.
What is a market?
For most of our daily dealings, we often visit the marketplace, which happens to be either a virtual or physical space where the exchange of goods and services takes place in exchange for consideration (in the form of money, or, in earlier times, a place that allowed "barter," i.e., the exchange of goods). Similarly, without over-complicating things, we can think of the stock market as a place where investors, traders, or others can buy or sell equity shares and other forms of investments (the types of investments available have been covered by @Edward666 in his post on Finance Session - Post 3).
The market participants in such a market include:
- The Regulator (which, in the United States, is The Securities and Exchange Commission (SEC))
- Brokerage Agencies (e.g., Robinhood platform, which allows you to buy and sell equity shares through their platform, for which they might charge you for the service)
- Retail or Individual Investors (these are common people like you and me who invest or trade in the stock market)
- Institutional Investors (entities that invest money for individuals or groups they represent. Hedge funds, mutual funds, and endowments are examples of institutional investors)
- Companies
- Stock Exchanges like the NYSE (New York Stock Exchange)
- Government Agencies
Equity Shares are a part of the company that is available for market participants to buy/sell, giving them voting rights in the company. There are various kinds of shares, which will be discussed in upcoming topics under various types of investment avenues, along with their benefits and limitations.
What is the purpose of an equity share? Why would a company choose to share a part of its ownership with the world? For any company to grow and/or continue its operations, it needs money. There are various sources through which a company can raise this money. It can be sourced through a money-lending agency like a bank, which charges a fixed or flexible rate of interest on the money lent, or through inter-company deposits, or by issuing debentures/bonds, which again equates to fixed interest payments to be made to the lenders. Issuing a part of the company for sale through equity shares avoids these fixed installments that the company would otherwise need to pay.
Example: Let’s assume ToZ Industries is valued at USD 1 billion, and we decide not to take money from enemy-controlled banks. But we need around USD 100 million to set up new projects in new countries. One way to go about it would be to dilute 10% of the ownership of ToZ Industries and issue 1 million shares on the open market, valued at USD 100 each. This way, we can raise USD 100 million for our project, and the investors would become part of the ToZ Industries family. What the investors would then be entitled to is the appreciation in the valuation of the company, instead of fixed timely payments to be made in a financial year (which are only a percentage of the amount lent in the case of debentures or loans).
What we see on the NYSE are these stocks being traded by market participants. An equity share that is issued for the first time by an organization is known as an First/Initial Public Offering Once it is traded amongst investors, these equity shares are no longer considered an IPO. Example in the real world: A farmer might sell directly to customers, and this would be known as an Initial Public Offering. In case a customer then sells these to another person, this is not part of an IPO but part of a normal trade activity.
What is an Investor and a Speculator? Going with the previous example, a person who believes in the success of the new project by ToZ Industries and invests to be part of the long-term initiative and sees themselves as a part of the company would be called an investor. A speculator, on the other hand, might have no idea what the company deals in and would have invested in the "hopes" that their money will increase. Informed money decisions need to be made before buying or selling equity shares. Always try to be an investor or a trader rather than a speculator. A speculator, in most cases, acts like a gambler, betting his chances at success.
As you might have understood now, the market you see has different market participants who work for individual goals and may or may not be informed about the decisions they are making. In case a hype is created around investments, there can be a mania among investors to acquire a particular investment type so as not to miss a once-in-a-lifetime opportunity (this happens a lot more than we care to believe). The market runs primarily on fear and greed. This can lead to the price of the said investment "bubbling" up to multiples of its original value (The Guardian article). In such cases, when this bubble bursts, there is a crash in the value of the said investment. However, in many cases, the intrinsic value of the stock was never that much to begin with!
Example - A Zevist who fell prey to this mass greed and fear ruining the value of his investments is Sir. Isaac Newton and his investment in South Sea Company.
For the part underneath, I have taken the help of Online Sources to avoid misquoting any aspects of the case
The South Sea Company was a British trading company that had exclusive rights to trade with South America, and in the early 1720s, people went wild over the idea that it would rake in huge profits. As a result, its stock price got massively inflated, and this period became known as the South Sea Bubble. Newton jumped into the action pretty early on and actually made a lot of money as the stock price shot up. It was all looking great for him at first. But then, as often happens in speculative bubbles, the hype wasn't backed up by real profits. More and more people piled into the stock, and eventually, reality hit. The price crashed in 1720.Freaking out about losing even more money, Newton sold his shares at a much lower price than he’d originally paid, wiping out a good chunk of his earlier gains.
This is where is famous quote comes from: "I can calculate the motion of heavenly bodies, but not the madness of people."
Price of shares when he entered and exited:
- Entry 1 (Early 1719): Around £100 per share.
- Exit 1 (April 1720): Around £1,000 per share.
- Entry 2 (Mid-1720): Around £1,000 per share.
- Final Exit (End of 1720): Around £150 per share after the crash.
1) https://webarchive.nationalarchives...archives.gov.uk/the-south-sea-bubble-of-1720/
2) https://www.historic-uk.com/HistoryUK/HistoryofEngland/South-Sea-Bubble/
I hope this session was Informative and Fun for the readers
Take Care
Hail Zev and the Gods!
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