What is the Stock Market?

Is it real? Is it fixed? How does it work and what do the numbers mean? Can a regular person make money in stocks? 

These are some really good questions. They had better be, I reckon, since I came up with them. If they are indeed good questions, let's dig in...

Is the Stock Market real or is it fixed? - The exchanges are all heavily regulated, but that does not necessarily mean that they are free from rule bending or straight up corruption.  I tend to lean toward the belief that the numbers are real and the buying and selling of stocks are real. As a mathematician who understands the general law of supply and demand, I can see where the numbers come from and it's not necessarily based on the daily successes of the company. In fact, in my belief, and one that is shared by Warren Buffett is that today's stock prices really don't mean much at all. 

How does it work? - I believe it's all based on one simple law, the law of supply and demand. As I watch stock prices and trading volumes in real time, it's easy to observe that the more stock is purchased, the higher the price goes. Likewise, as more stock is sold, the price goes lower. Since people have greatly differing reasons for buying or selling their stock, it does not make sense to directly correlate a company's success to their stock price. Watch the markets yourself. As volume pushes higher, so does the price. As the stock sells off, so the price goes.

Can a regular person make money in stocks? - I certainly believe so, but there are two kinds of investors. The long-term investor looks for companies with a solid track record of growth and stability and sticks with them for the long haul. If the best companies are the ones you selected, then yes, you can make money this way. The short-term investor, or day-trader as many call them, are sometimes able to make larger amounts of money in a shorter period of time based on daily market news and movements. A few years ago, it was fairly difficult to start a fund to trade stocks daily. Now there are several very easy-to-use apps that allow you to get started in the stock market with virtually nothing but a U.S. bank account and a few bucks.

The opinion offered in this article does not constitute financial advice on a professional level.

The following graphic and caption was added to this original article on November 16, 2020.

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