How The Stock Market Works?
- Thread starter thingyamabob
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Quote from thingyamabob:
--Microcap stocks are risky because once you buy you may not be able to sell the stock, thus costing you a forture.
Microcap stocks are risky generally because they are worthless by traditional valuation metrics - they are gambles on future developments. If they are new companies, you're trusting someone with no track record of hitting their goals. If they're old companies, they're tiny stock price is a result of a track record of not making their goals, and you have to believe that "this time is different".
There are generally a small number of shares held publicly, and you can't trade any significant size (buy or sell) without finding someone to buy or sell shares from/to or moving the price unreasonably.
And then you have to be able to do it again in order to exit the trade. You have to know something they don't in order to do these trades at a price that will make you money.
Generally, investors in these companies are less scrutinized for insider ties, and even without such ties, they tend to do a lot of research in non-traditional ways, giving them more information than you (if you don't do the same research). Add to that the pump-and-dump guys that try to generate momentum out of thin air with outright lies, failing to timely deliver orders, etc., and you basically have a killing field.
--Since you buy stocks through a broker you never actually deal directly with the company and the money comes from the brokerage when you sell, not the company.
Close enough, but it's not your broker's money (necessarily). You walk into your broker (brokerA) and deposit money in an account. He actually gives that money to his clearing firm (clearingA). Someone else (partyB) takes a 100 share stock certificate to his broker (brokerB), who deposits the shares with his clearing firm (firmB). He wants to sell his shares for $10.00, and tells brokerB to do so. You want to buy 100 shares for $10.00 and tell brokerA to do so. brokerA contacts brokerB or sees his quote displayed and they execute the trade. Three days later, firmA sends firmB $1000.00, who puts it in partyB's account, and firmB sends firmA the 100 shares, who puts it in your account. Generally, the stock and money appear and disappear from the parties' statements on the day of the trade, not waiting the three days for the transfer to actually take place - the clearing firms keep track of all this.
It is possible that partyB can be your broker, or another broker or market-maker, which is called "acting as principal", selling you shares out of, or buying them for his own account. This happens a lot with microcaps because of the lack of real buyers/sellers (called "naturals"). The broker sells you stock from his own inventory, or sells it short to you, or buys it from you, and then hopes to cover his position at a profit when other naturals show up. He generally expects to be well-paid for this risk, meaning you'll have to pay up when you're buying, or take less when you're selling.
--And microcap stocks have a limited number of available shares, so you can't always get in on a hot IPO being no shares are available.
Unless you have a LOT of money, you can't get in on any IPO, unless it's a dud. Almost exclusively, to get shares of an IPO that has some value in it at the offering price (like CMG), you have to have a large account with a tier-1 firm (MER, JPM, MS, C, PRU, etc.) and pay them lots of commissions and management fees on a regular basis. During the bubble, there was a brokerage called Wit Capital, which basically was a lottery for the small guy to get 100 shares of various IPOs. I got filled twice out of 30 tries. They were both duds. I held the first for 6 months for a 50% loss to avoid being labeled a "flipper". The second time, I bailed for a 10% loss as it tanked and never looked back.
Microcap IPOs are almost always duds. As bad as venture capital firms are, if you are a small company and need money, and even they won't talk to you, and you have to get some flake broker to try to do an IPO of your shares, they're very likely to be worthless. If someone, usually from some broker you've never heard of, who always has a lot of background noise on the phone (from the "boiler room" he's in) wants to "let you in" on a microcap IPO, run screaming in the other direction.
--Microcap stocks are risky because once you buy you may not be able to sell the stock, thus costing you a forture.
Microcap stocks are risky generally because they are worthless by traditional valuation metrics - they are gambles on future developments. If they are new companies, you're trusting someone with no track record of hitting their goals. If they're old companies, they're tiny stock price is a result of a track record of not making their goals, and you have to believe that "this time is different".
There are generally a small number of shares held publicly, and you can't trade any significant size (buy or sell) without finding someone to buy or sell shares from/to or moving the price unreasonably.
And then you have to be able to do it again in order to exit the trade. You have to know something they don't in order to do these trades at a price that will make you money.
Generally, investors in these companies are less scrutinized for insider ties, and even without such ties, they tend to do a lot of research in non-traditional ways, giving them more information than you (if you don't do the same research). Add to that the pump-and-dump guys that try to generate momentum out of thin air with outright lies, failing to timely deliver orders, etc., and you basically have a killing field.
--Since you buy stocks through a broker you never actually deal directly with the company and the money comes from the brokerage when you sell, not the company.
Close enough, but it's not your broker's money (necessarily). You walk into your broker (brokerA) and deposit money in an account. He actually gives that money to his clearing firm (clearingA). Someone else (partyB) takes a 100 share stock certificate to his broker (brokerB), who deposits the shares with his clearing firm (firmB). He wants to sell his shares for $10.00, and tells brokerB to do so. You want to buy 100 shares for $10.00 and tell brokerA to do so. brokerA contacts brokerB or sees his quote displayed and they execute the trade. Three days later, firmA sends firmB $1000.00, who puts it in partyB's account, and firmB sends firmA the 100 shares, who puts it in your account. Generally, the stock and money appear and disappear from the parties' statements on the day of the trade, not waiting the three days for the transfer to actually take place - the clearing firms keep track of all this.
It is possible that partyB can be your broker, or another broker or market-maker, which is called "acting as principal", selling you shares out of, or buying them for his own account. This happens a lot with microcaps because of the lack of real buyers/sellers (called "naturals"). The broker sells you stock from his own inventory, or sells it short to you, or buys it from you, and then hopes to cover his position at a profit when other naturals show up. He generally expects to be well-paid for this risk, meaning you'll have to pay up when you're buying, or take less when you're selling.
--And microcap stocks have a limited number of available shares, so you can't always get in on a hot IPO being no shares are available.
Unless you have a LOT of money, you can't get in on any IPO, unless it's a dud. Almost exclusively, to get shares of an IPO that has some value in it at the offering price (like CMG), you have to have a large account with a tier-1 firm (MER, JPM, MS, C, PRU, etc.) and pay them lots of commissions and management fees on a regular basis. During the bubble, there was a brokerage called Wit Capital, which basically was a lottery for the small guy to get 100 shares of various IPOs. I got filled twice out of 30 tries. They were both duds. I held the first for 6 months for a 50% loss to avoid being labeled a "flipper". The second time, I bailed for a 10% loss as it tanked and never looked back.
Microcap IPOs are almost always duds. As bad as venture capital firms are, if you are a small company and need money, and even they won't talk to you, and you have to get some flake broker to try to do an IPO of your shares, they're very likely to be worthless. If someone, usually from some broker you've never heard of, who always has a lot of background noise on the phone (from the "boiler room" he's in) wants to "let you in" on a microcap IPO, run screaming in the other direction.
Why does the price of the stock rise? Is it only becuase the company is giving a divident. If so, some companys don't give dividents and just the other day GM cut theirs in 1/2.
I can't understand why someone would pay $400 for Google, to get such a small divident. Because there is no other money comming into this.
I know more people want it so supply and demand, but why would you want something that gives you so little?
To put it simply lets change the area of focus. It would be like some kid saying, I'm about to start school (IPO) and then him letting people purchase schoolarships for him (the shares). Everytime he got an A on his report card (earnings report) people would Jack the price up on his stock. But he didn't give them anything??? Other than get the A. So lets say he gives them $2 in dividents becuase he got alot of A's. Is that worth it, for spending $150 a share or would dividents be ususally higher for higher priced stocK?
I can't understand why someone would pay $400 for Google, to get such a small divident. Because there is no other money comming into this.
I know more people want it so supply and demand, but why would you want something that gives you so little?
To put it simply lets change the area of focus. It would be like some kid saying, I'm about to start school (IPO) and then him letting people purchase schoolarships for him (the shares). Everytime he got an A on his report card (earnings report) people would Jack the price up on his stock. But he didn't give them anything??? Other than get the A. So lets say he gives them $2 in dividents becuase he got alot of A's. Is that worth it, for spending $150 a share or would dividents be ususally higher for higher priced stocK?
First off money is never really made or lost! It is rotated like from bonds, to stocks, to real estate and so on! Sector rotation, window dressing, or what ever you want to call it. What drives the market is supply and demand. You need to learn to understand order flow. That is what tape readers look at and charts show. The news, earnings, etc, donât mean anything until the order flow tells you what to so! Every see a stock with great news fall? Order flow! A seller decided to sell! Nothing more!
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Tbob;
Two points.
a] Tbob if you study a microcapstock with say volume/ 1 million;
buys/sells are ''easy''
z]See''a'' again.
However even with good liquidity[1 million];
as you said yourself ''could lose a fortune!!!!!!!!!!!!!!!!!!!!!
Penny stocks tend to live thier name, my plan allows me to trade 1[one per year], because penny stocks tend to live thier name.
Notice an elite rule ''no penny stocks posted''
Elite management may or may not enforce that rule;
but keep records;
& watch penny stocks live thier name,
exceptions just prove the rule.
Also probabilities play a part, not 100% exact predictions;
wisdom is profitable to direct.
zook: There are many, many books and websites explaining fundamental valuation of stocks. Dividends (note spelling) are but one small part. In short, by buying stock, you get ownership of a company. To look at the extreme case, if you buy 100% of the stock of the company, you get the right to keep its net cash flows (i.e. declare dividends) or the right to sell it to someone else who wants it.
Personally, if a company can re-invest its profits to provide more total return than by giving me a dividend, I'd rather they do so.
Personally, if a company can re-invest its profits to provide more total return than by giving me a dividend, I'd rather they do so.