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Week 5 [12.11-17.11.19] Do you know how stock exchange work?


Probably everyone heard about stock exchange, especially NYSE (New York Stock Exchange) and our Polish market - GPW. We generally know that stock exchange has huge potential for growing your capital and even bigger potential for losses. The word ‘growth’ and green indexes cause faster beeping of our hearts, almost everyone would like to multiply their assets and becomes millionaire or rentiers. On the other hand, losses are even more common and there are plenty of people who went bankrupt because of investments all their money into assets on stock exchange market. If it’s so risky, why do we get into, and eventually, how exactly does it work?

To understand the rules of a stock exchange, first, we should move back into the beginnings of the XVI century, when huge colonial movements have been started. In the 1602 Dutch East India Company was established to support and fund trade voyages around the globe. Demand for exporting and importing goods constantly growing, but voyages required significant financing, therefore they decided to set up the worlds’ first Stock Exchange where investors could support a trip in exchange for a share of the potential profits gained from trade. In other words, they were exchanging money for securities, which could be encashed when the voyage is over or resold for other investors. Of course, not all of them ended up successful, as some of the ships sank. Therefore investors haven’t any guarantee they will get declared profit.
Generally speaking, the basic rules of stock exchange remained really similar till now. Investors (who might be an organization or natural person) transfer their money to a particular company in exchange for shares in a company. The main difference is, that you won’t get a physical contract on paper anymore, but your transaction will be stored in databases.
See-saw of supply and demand

Companies decide to issue shares on a stock exchange in order to gain fundings for their growth and investments. The more profitable a company seems to be or the bigger potential for further growth it has, the more investors decide to invest in a company. Similarly when company seems to reach a peak and doesn’t have any idea how to increase their profits, starts to have financial problems (e.g. debts exceeding the value of its’ all assets) or serious competition seems to appear on the horizon, shareholders starts reselling their securities and therefore, the company shares decline.


Theoretically, companies have variety of options to stop downfalls, like start to share part of their income with shareholders - in other words, the company starts to pay a dividend. Many companies pay dividends regularly, for example in Poland common is yearly distributed dividends or quarterly in the USA. On the other hand, some of them share dividends when their incomes are extremely high and the management does not have ideas on how to reinvest the money. Eventually, there are also companies which decide to share dividend exceeding their total income in a desperate act, just to try to stop declines and attract investors again. 


Types of investors
Generally, there are two main kinds of investors in stock markets. There are called speculators and long-term investors. Just to simplify, the first group use technical analysis (use historical charts and different types of formations, mathematical calculations or… just roll a dice) and the second one tries to look in a longer perspective and use fundamental analysis. This type of analysis means that you try to assess the real value of a company, their assets, field for potential growth in a future, risks and general situation on a market, business cycle, value of materials etc. You can’t say which strategy is better, as there are millions of factors and circumstances. Also, the strategy might be related to market-specific things, like for example high developed markets like USA and Germany behave completely different than emerging markets (e.g. Turkey, Pakistan, Nigeria).
Despite what strategy will you choose, it should be rational rather than an emotional decision.


Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” - Paul Samuelson
“Investing is simple, but not easy.” - Warren Buffett
Questions:

  1. Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
  2. Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
  3. What do you think about such a long bull market on the American market?
  4. Does it make sense to use AI for technical analysis?

Sources:
https://www.youtube.com/watch?v=p7HKvqRI_Bo
https://www.youtube.com/watch?v=F3QpgXBtDeo
https://en.wikipedia.org/wiki/Dutch_East_India_Company
Krótka historia ekonomii, Kishtainy Niall
based on own knowledge
Pictures:
https://en.wikipedia.org/wiki/File:VOC.svg
https://www.pexels.com/photo/1-us-bank-note-47344/
https://www.pexels.com/photo/blue-and-yellow-graph-on-stock-market-monitor-159888/

Comments

Cem Ates said…
1- Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
Buy and sell is the best kind of investment, because long-term might look in the term but stocks are kinda crazy. first rule on money investment is easy, if you lose money don't wait long-term for fixing your lost, it will just cause more lose, and never leave your money on stock over the night. lol

2- Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
Yes. If you have enough money you can even make money with them.

3-What do you think about such a long hossa on the American market?


4- Does it make sense to use AI for technical analysis?
It's all about understanding where to support and where to resistance. No, I don't trust AI in huge amount of money investments.
1.I think I would rather be speculator than long term investor. I like strategy of rolling the dices as no one can be sure or predict how things gonna end.
2.I would invest in smaller companies that have a chance of becoming the big players
3.I don't undestand what do you mean of long hossa.
4.I think yes. But I wouldnt led my money anyway.
1. Are you a kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
I've never invested in the stock market before. I don't have much knowledge about it. I only know a few basic concepts. It's quite a difficult topic and it's hard for me to talk something. After a few conversations with my friends who invest on the stock exchange, long-term investing definitely appeals to me. I just have a more conservative approach. I prefer to wait for greater success with reduced risk.

2. Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
I don't think I will ever invest in the stock market. However, if I did this I would probably invest in Netfilix. Looking at their further development plans, there is a high probability of earning on them.

3. What do you think about such a long bull market on the American market?
I hope that it will not end like in mid-2007 with such a huge crisis on a global scale.

4. Does it make sense to use AI for technical analysis?
It is worth using AI for initial analysis. However, I don't think AI can detect all stock market behavior. They depend on many factors, including psychological ones, which AI doesn't have much influence
1. Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
Oh no, I've never invested money in this way. I have no head for business, let alone money management.
I know that in this topic you should have a good sense of the moment to withdraw at a profit at the best moment. I would have to devote a lot of time and attention to this to be able to deal with it.

2. Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
I think that if I were to implement it, I would choose a reliable company on the market, such as Netflix, Samsung, a well-known car or clothing brand. With little experience, I would not invest in little-known companies.

3. What do you think about such a long hossa on the American market?
According to the data I found, few companies are currently well priced, however, this is a very desirable situation (I mean hossa)

4. Does it make sense to use AI for technical analysis?
This is certainly a very good reference point, especially for people who are just trying to implement or have little experience. However, I think very advanced people only use it as a suggestion.
Kyrylo said…
Strangely, I actually dislike the concept of money at all. I admit that currently, after nearly four millennia of its existence way too many thing revolve around this foul thing, and depend on it, but what is more, entire sciences have developed solely to study this... thing. I am sorry to say that, but seeing, how many human resources is thrown to develop, study, invent and build so many things driven only by money: like stock markets, financial organizations, companies, even entire universities studying finance feels just like a huge waste, instead of pursuing actually interesting and beneficial goals, like sending humans to the stars. It was invented by people as a solution to make resource trade easier, and little did they know what atrocity have they set in motion.

I do realize that resenting this thing in modern world is shooting in own leg, however, I still try to distant myself from spending time on activities related to money (especially the ones with no guarantee reward, like stock investing), in disgust.
1. I have never invested before, but I think that long-term investments in stocks is less appealing to me, since the market is only seemingly predictable, even if you know what you are doing. I think that investments in properties is better for most people.

2. People tend to base their decisions on the majority of the society, so I think that if you know what you are doing, you can invest in anything and gain profits.

3. I don't really have an opinion on that topic.

4. Using AI for such things is just a modern word for statistics, so it makes sense to use it for information purposes, but I wouldn't base all my decisions on AI.
1. According to me, long-term investments are reasonable, although they carry considerable risk, but they also have great potential.
2. I think that the risk of investing in such large companies is too great and their listing can change quickly due to the change in public opinion.
4. It is certainly a very useful tool.
Mateusz Szych said…
1. I don't invest on the stock market. I think that a mix of both strategies is the best solution.

2. Yes of course. There is a high probability of profit from such companies.

3. This means that the stock market crash is approaching. There are already signs of recession.

4. The current artificial intelligence is still too weak, but in the future its use will be desirable.
Paweł Hadacz said…
1.Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?

I am interested in the stock exchange, but unfortunately I do not have enough capital. I prefer to focus on slow getting rich and then I'm going to invest in the real estate market. The real estate market seems to be more stable, by investing in it, you can get passive income. if I succeed, then I can try my hand at the aforementioned field.

2.Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?

Unfortunately I am not an expert in that area. It's hard for me to say if I would be able to invest in it. I heard that CD Project RED is a rapidly growing Polish company that is very successful even on the international market, and the games they create are recognizable all over the world, so if I had enough money maybe I would invest in this company. I read that netflix is ​​still indebted despite of great beginnings. and although investment should not be approached emotionally, the company's policy is repulsive.

3. What do you think about such a long hossa on the American market?

I don't have enough knowledge to answer this question sensibly.

4. Does it make sense to use AI for technical analysis?

I think that's a very good idea. Artificial intelligence is constantly developed and is becoming more and more successful in various fields that's why it's worth considering her reports. But only as a help, and make decisions at your own discretion.

Pawel Bluszcz said…
1. I have never invested and I do not intend to invest (unless on myself)
2. No, I don't see the point of investing.
3. Since there is a long hossa in the market, it will also be a longer or very rapid bessa. In nature, everything remains neutral.
4. Yes, computers are smarter than people and can analyze more and more effectively.
1. I don't invest on the stock market, but I think I would mix both of the strategies. Some investments need time, others are just impulse
2. Yes, some of them. I think that now investing in RED is very risk, but few months after premiere of Cyberpunk 2077 it would be a good moment to invest in this company. But you never know what's gonna happen tomorrow
3. I don't really know what does "long hossa" mean so I can't answer that question
4. I don't think so. At least for now. AI have to detect what is going on, the whole behavior of stock market and other factors that affect the stock market.
Bartosz Waś said…
1. I don't currently invest in the stock market but from my perspective long term investing seems more reasonable. However this approach looks like something for people with bigger experience and sense. It takes knowledge, perseverance and a lot of patience to predict long term movement on the market.Still, it reduces chances of failure and aggregates average profit. In spite of that if I started to invest I would rather prefer to take a speculator path at the beginning.

2. If I was a professional investor I would definitely invest. It could generate a steady a pretty certain profit in a long term perspective. Such companies seem to not cause big raises of stock value at that high level of maturity but still they are not likely to be a reason of big losses.

3. I don't understand what you mean by hossa so there is nothing I can say about it.

4. I think it makes a lot of sense. Anything that can be somehow described by mathematical operations and statistics is a great place to adapt AI algorithms that could be learning from lots of historical data and detect patterns in it.
1.Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
I used to work on stock market, only once I've invested couple of dollars and got little profit. I used many strategies and most of them not working at least if you don't have strong fund position.

2.Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
It's quite risky to invest for companies because their volatility is quite strong. You can get bigger profit if you invest to some digital coins. Of course if you know some basic rules and methods of investing.

3.What do you think about such a long hossa on the American market?
I Don't really understand your question about "long hossa".

4.Does it make sense to use AI for technical analysis?
It's quite hard to say because personal predictions and analysis much more efficient rather than AI based one. AI usually makes good predictions if there are going to be similar situations based on collected data of previous year.
1. Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?

Currently, I am not investing in the stock market, but want to start when I will have a possibility. I think a long-term investment is more profitable. Of course, it wants the result in such quick growth, but it will be reliable and safer.

2. Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?

I would invest in some of them. For example, it is a good idea to invest in CD Project RED, as they will launch their new game Cyberpunk 2077, which very hyped and a lot of people is waiting for it. I think Tesla is a little bit of risky investment because there appears some strange new news about it.

3. What do you think about such a long hossa on the American market?

To be honest, I am not an expert, so I can't answer this question.

4. Does it make sense to use AI for technical analysis?

I think it depends on how well the AI is trained, what is the industry and many more factors, which could influence the AI. Now we don't have good AI, which good predict all the changes in all the industries.
Roman Dubovyi said…
1. Invest small amounts of many by speculation, invest big amount by long term reasoning.
2. Well I have used Netflix and CD Project Red products. I wouldn’t call them overrated. Although Tesla is daring to turnover the whole industry so I wouldn’t invest in that for a reason.
3. ???
4. AI can detect some simple analysis for cases like “bubble” and other stock graphs, but understanding the context of news and predicting What will happen to stock next day is another question. But I think it’s kind of possible.
s15487 said…
Thank you for your opinion. I agree that stock exchange might be unpredictable, and the idea of cutting losses is pretty reasonable as well. On the other hand, when you try to assess company value and you assume that it's underrated or it's drastically decreased and you noticed trend change, it might be opportunity in a longer perspective.
s15487 said…
Thank you for your reply. You have right that investing in a small companies might make way much profit in a longer perspective, but it also risky, as huge percent of small companies go bankrupt as they develop.
By long hossa I meant the period of last crisis till now. Currently stocks on NYSE are extremely overrated.
s15487 said…
Thank you for your opinion. I Totally agree that long-term investing is less risky and might give better results in longer perspective.
Unfortenatelly, all of the Americal crisis affect on a global scale, especially on such a small markets like GPW :(
s15487 said…
Thank you for your opinion. Sorry for the 3rd question, I should replace the 'hossa' with 'bull market'.
ad2. When you try to count some basic technical indicator like P/E you realize that CDP has over 250 ratio, which means that it's extremely overrated. Of course, their incomes increase rapidly after Cyperpunkt release, but still, the ratio I would claim that people boosted the real value too much.
s15487 said…
Thank you for your opinion. You are absolutely right, that it requires a lot of time to invest on stock market, but you could read about ETF's.
Ad. 3. Yes, I agree that the situation is desirable, but the thing is it lasts so long comparing to falls in the past.
s15487 said…
Thank you for your opinion. Think about people were trading before inventing concept of money. Do you thing that they would be able to develop cosmic industry without it?
s15487 said…
Thank you for your opinion.
1. Proterty are not super stable when you consider it as a long-term investment, but sure, it might be more approchable.
2. Sure, if you'll have enough luck :)
s15487 said…
Thank you for your opinion.
I agree with you, but I would rather say that reasonably priced big company is less prone to fluctuations than a small one. But if you mean those IT companies, you are exactly right.
s15487 said…
Thank you for your opinion.
1.I definetily agree, that compromise between both strategies could give good results.
2. Sure, but huge losses as well.
3. Do you think that central banks like FED might prevent it?
s15487 said…
Thank you for your opinion. Sure, there are many other ways to invest money and estate market could be more stable, but on the other hand properties on Polish are overpriced as well.
Are you kind of speculator or long-term investor? If you are not investing in the stock market, then what strategy seems more reasonable?
I think that the diversity of investments is my choice . Some of them will be short term, but mostly the long term investments will work for me. I think that playing with the short term bids are very similar to the casino system.
Would you invest in seriously overrated companies like CD Project RED, Tesla, Netflix?
It is not worth it. The best way to invest is to place the bet on a smaller company that you think will become big. I would invest into such company only if they would have a minor downfall with a huge reduction of an exchange rate.
Does it make sense to use AI for technical analysis?
It will kill the stock markets. They make sense only because they are unpredictable . You should keep the balance. Someone wins - someone loses.

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