Rich Dad’s Financial IQ Cultivation: Stock Fundamentals

Chapter 8 Fundamentals of the Stock Market (1)
((Section [-])) Overview of the stock market
[-]. The origin of the stock market
In the stage of primitive accumulation in the early stage of capitalist development, securities trading already existed in Western Europe in the 16th century.At that time, Lyon and Antwerp already had a stock exchange, and the first to trade on the stock exchange was the National Securities.Since then, with the development of the capitalist economy, the separation of ownership and management rights has emerged, making stocks, company creditor's rights and real estate mortgage creditor's rights enter the ranks of securities transactions in turn.In Britain, where capitalism developed the earliest, more than 300 years ago, merchants called "stockbrokers" had already engaged in some simple businesses in the stock market in their main market, the London Stock Exchange. In 1689, the Bank of England established Four years later, there were already a large number of securities brokers in the UK, and the "Jonathan Cafe" was established, which was approved by the British government in 4.It initially operated government securities, then company securities, mines, and canal stocks. By the middle of the 1802th century, some informal local securities markets had also emerged in Britain.Railroad stocks are booming.The first stock exchange in the United States, the Philadelphia Stock Exchange, was born in 19. On May 1790, 1792, 5 businessmen engaged in auction business and other industries agreed under a sycamore tree on Wall Street in New York to engage in securities (mainly stock) transactions here every day. In 17, a coffee shop named Toddy operated, which was the earliest embryonic form of the New York Stock Exchange. At that time, all stock exchanges in New York were financial stocks, including 24 bank stocks and 1793 insurance stocks.Later, due to the impact of the American Industrial Revolution, railroad stocks, transportation stocks, and mining stocks began to circulate in the market.

In my country, after the 19s, the Westernization Group of the Qing government established some enterprises.With the emergence of the shareholding system of these enterprises, the stocks of Chinese enterprises came into being, followed by the emergence of the securities market.The earliest securities trading market in my country was founded in the "Shanghai Stock Exchange" and "Shanghai Zhongye Office" organized by foreign businessmen in Shanghai in the late Guangxu period of the Qing Dynasty.The securities traded on these two exchanges mainly include stocks of foreign companies, corporate debt, rubber stocks in the Nanyang area, gold coin bonds issued by the Chinese government, and debts issued by foreign administrative agencies in Shanghai. Two kinds of rubber stock.Exchanges founded by the Chinese themselves were rare before the Revolution of 70. After 1912, the scale of securities trading gradually expanded. In 1919, Beijing established the Stock Exchange, which was the first stock exchange in the country specializing in securities business; Shanghai established the "Shanghai Huashang Stock Exchange".This marks the beginning of the formalization of China's securities market.

[-]. Development of the stock market
At the beginning of the 20th century, capitalism transitioned from the stage of free competition to the stage of monopoly.It is in this process that the stock market adapts to the needs of the development of the capitalist economy in its unique form, thereby effectively promoting capital accumulation and concentration, and at the same time enabling itself to achieve great development.During this period, due to the massive expansion of capitalist fictitious capital, the entire securities industry was in a highly developed stage, and the total amount of securities that were realized into securities increased sharply.From 1890 to 1900, the circulation increased nearly 5 times.At the same time, the structure of securities during this period has also changed. It is no longer government bonds that dominate securities, but company stocks and corporate bonds. Company stocks and corporate bonds.According to statistics, from 1900 to 1913, a serious economic crisis occurred in the capitalist world. The precursor of the crisis was the sharp drop in the stock market, and the ensuing Great Depression seriously affected the stock market.After the crisis, the stock market remained depressed.After the outbreak of the Second World War, although the belligerent countries issued a large amount of public bonds due to the war, the entire stock market was still in a recession.

After the end of the Second World War, with the economic recovery and development of Europe, America and Japan, as well as the economic growth of various countries, the recovery and development of the stock market was greatly promoted. After the 70s, the stock market has experienced a highly prosperous situation, the scale of the stock market has continued to expand, and stock transactions have become more and more active.With the improvement of economic scale and intensification in western industrialized countries, the vigorous economic rise of developing countries in Southeast Asia and Latin America, and the advancement of modern computer, communication and network technology, the stock market has entered a stage of rapid development. In 1986, the total market value of the global stock market was 6.51 trillion US dollars, and the total number of listed companies in the world was 2.82. By the end of 1995, the total market value had risen to 17.79 trillion US dollars. More than 10, reaching 3, and by 1, the global stock market value continued to rise, reaching 3.89 trillion US dollars.In major developed countries, securitization rates (the ratio of total stock market capitalization to GNP) have reached relatively high levels. In 1996, the securitization rates of the United States, Japan, and the United Kingdom reached 20.29%, 1995%, and 95.5% respectively. The stock markets of developing countries also grew rapidly. It increased to 83.5 trillion US dollars in 121.7, an increase of nearly 1986 times in 0.24 years.While the scale of the stock market has expanded, trading activities have also become increasingly active. In 1995, the transaction value of the global stock market was 1.9 trillion U.S. dollars, and in 10 it reached 7 trillion U.S. dollars.

Since the 70s, a series of major changes in the world economy and the rapid development of science and technology have had a major impact on the development of the international securities market. The traditional model of the securities market is undergoing major changes. This trend of change mainly reflects In four areas:

(1) The intangible securities trading model, the establishment of an intangible trading system based on modern technology has become a trend in the development of securities markets in all countries in the world. The intangible trading system has changed the traditional trading method and uses computers to implement automatic matching of transactions , Changing tangible seats into intangible seats, investors only need to use computer terminals to conduct transactions on their own. At the same time, the existing securities market is expanding rapidly by extensive use of network technology, and a new network market has begun to form.

(2) Global market integration and global financial market integration are an important trend in the development of international finance. In the process of integration, the wave of global financial deregulation and the application and promotion of modern information technology in the financial industry have promoted development of this trend.

(3) Securities derivatives, securities derivatives, various securities futures, options, futures and other securities derivatives have developed rapidly and become important varieties in the international market. It is foreseeable that a series of new securities derivatives in the 21st century will will keep showing up.

(4) Investment tends to be institutionalized. With the expansion of the market, more and more small investors turn their funds to fund-raising investment securities, which makes fund-raising investment institutions grow, and investor institutions in mature markets have developed. to institutional investors.

[-]. Overview of modern stock market

The stock market, also known as the secondary market or secondary market, is the place where stocks are issued and circulated, and it can also be said to refer to the place where issued stocks are bought, sold and transferred.Stock transactions are realized through the stock market.Generally, the stock market can be divided into primary and secondary markets. The primary market is also called the stock issuance market, and the secondary market is also called the stock trading market.

We have already said that a stock is a security.In addition to stocks, securities also include national bonds, corporate bonds, real estate mortgage bonds and so on.National bonds appeared earlier and were the first marketable bonds to be put into trading.With the development of the commodity economy, marketable bonds such as stocks gradually appeared later.Therefore, stock trading is only a part of marketable bond trading, and the stock market is only one of many marketable bond markets.At present, there is rarely a single stock market, and the stock market is just a place in the securities market that specializes in stocks.

The stock market is one of the main ways for listed companies to raise funds.With the development of the commodity economy, the scale of the company is getting bigger and bigger, which requires a lot of long-term capital.However, it is difficult to meet the needs of production development if the company's own capital accumulation is used alone, so it is necessary to raise funds from outside.There are generally three ways for companies to raise long-term capital: one is to borrow from banks; the other is to issue corporate bonds; the third is to issue stocks.The first two methods have higher interest rates and time limits, which not only increase the company's operating costs, but also make it difficult to stabilize the company's capital, so they have great limitations.However, by issuing shares to raise funds, there is no need to repay the principal and interest, and only need to allocate part of the profits to pay dividends.Comparing these three financing methods, the method of issuing shares is undoubtedly the most economical and beneficial to the company.Therefore, issuing stocks to raise capital has become an important form of developing the economy of large enterprises, and stock trading occupies a very important position in the entire securities trading.

Changes in the stock market are closely related to the development of the entire market economy, and the stock market has always played the role of a barometer of economic conditions in the market economy.

Four, the basic characteristics of my country's stock market
1. my country's stock market is in an adjustment phase

my country's Shanghai and Shenzhen stock markets have developed from a local stock market to a national stock market.When it officially opened in December 1990, there were only a small number of listed stocks, and the scale was very small, and the listed stocks were basically local stocks in Shanghai or Shenzhen. Off-site stocks.In the development of its stock market, due to the lack of strategic considerations, the expansion of funds and the expansion of stocks are not synchronized, especially the expansion of funds is much faster than the expansion of stocks.In the five years from 12 to 1991, the number of stock business departments expanded from dozens to nearly 1996 now, and the capital entering the market increased from more than 3000 billion yuan to more than 10 billion yuan now, while listed companies only increased from nearly 3000 billion yuan in those years. The 20 companies have increased to more than 400 now, and only 300 billion shares are listed and circulated.The supply and demand relationship in the stock market was extremely unbalanced, which caused the stock price to skyrocket in the first two years.

上海股市从1990年12月开始计点，1992年年底就上升到了780点，平均年涨幅达到179%；深圳股市从1991年4月开始计点，1992年底也涨到了241点，年均涨幅也有68.5%。

Due to the excessive increase in the stock price in the first two years, accompanied by the expansion of the stock market, after the stock price reached a historic high in the first half of 1993, the stock price stagnated, and the Shanghai and Shenzhen stock markets entered a difficult adjustment stage. In 1993, the closing indexes of Shanghai and Shenzhen stock markets were 833 points and 238 points respectively, in 1994 they were 647 points and 140 points respectively, in 1995 they were 555 points and 113 points respectively.According to the rising speed of foreign stock indexes and the actual situation of our country, the adjustment of our country's stock market is estimated to take quite some time.If there is no serious inflation in the country, it will take more than five years for the Shanghai Composite Index to stabilize at 1000 points.

2. Demand exceeds supply
my country's stock market has a large number of shareholders and a large amount of funds entering the market, but there are few stocks in the market, and the stock market presents an obvious situation in which stocks are in short supply.According to preliminary statistics, by the end of October 1996, there were about 10 million registered shareholders in the Shanghai and Shenzhen stock markets, while the size of tradable shares in the Shanghai and Shenzhen stock markets during the same period was about 1800 billion shares, with an average of only nearly 300 shares owned by each shareholder.According to preliminary estimates, the after-tax profit per share of my country's listed companies in 1700 was less than 1995 yuan. If it is evenly divided, the per capita income of shareholders is only 0.30 yuan. Calculated on the basis of 500 yuan per capita in the market, the rate of return on stock investment (excluding transaction tax, fee) is only 20000%, which is only equivalent to the current savings interest rate.And because stockholders trade frequently in the stock market, the sum of their handling fees and transaction taxes is often more than the sum of the after-tax profits of tradable shares.

3. The stock market is over-traded
Due to the strong speculative nature of stockholders in our country, their main motivation for entering the market is to fight the price difference, so many stockholders make their careers in stock speculation.If there is any slight disturbance in the stock market, people will buy and sell, chasing ups and downs prevails, and the trading in the stock market is extremely active.For example, the average annual turnover rate of stocks in mature stock markets abroad is less than 40%, while the average annual turnover rate of my country's stock markets exceeds 600%, which is 15 times that of mature foreign stock markets.

Excessive trading in the stock market has led to sharp rises and falls in the stock market. For example, in the 200 years since its inception in the United States, the New York stock market has only had a daily rise or fall of more than 3% 10 times, while the Shanghai and Shenzhen stock markets have risen and fallen by more than 3%. It must account for more than 20% of the entire trading day.The second consequence of excessive trading is the increase in transaction costs for shareholders. From January to October 1996, the trading volume of stocks in the Shanghai and Shenzhen stock markets reached 1 trillion yuan, and the transaction taxes and handling fees paid by shareholders were nearly 10 billion yuan. It is estimated that the after-tax profit of tradable shares of listed companies this year is only nearly 1.3 billion.Compared with income and expenditure, the expenditure is 200 billion more, which makes the entire stockholders a loss-making group.

4. The stock market has yet to be regulated
my country's stock market was developed by the local stock market, and the central government's supervision of the stock market began in the second half of 1992, and the operation of the stock market has yet to be regulated.From the perspective of macro management, one is that there is still a lack of unified understanding of the laws of the stock market, which is specifically manifested in the lack of scientificity and continuity of relevant policies, such as the expansion of the stock market and the control of listing indicators still follow the method of quota control.The second is the lack of a long-term plan for the development of the stock market, such as the merger of state shares and legal person shares, without a specific implementation plan.The third is that the supervision of the stock market is obviously insufficient, such as the supervision of information disclosure and the prevention of joint manipulation of the stock market by large institutional investors.

From the perspective of the stock exchange, although the Shanghai and Shenzhen stock markets have been called the national stock market, the stock exchange is still under the local management, and half of the securities transaction tax belongs to the local finance. The local interests of the stock exchange are very serious. It is manifested in that both exchanges regard the size of the trading volume as the work target (more transaction tax can be charged if the trading volume is large), so it is obviously weak to stop some irregular behaviors that are conducive to active stock market transactions.

From the perspective of securities companies, on the one hand, they use their financial strength to manipulate stock prices in their self-operated business in order to profit from it;

In terms of listed companies, in order to successfully complete the issuance of new shares or allotment of shares, they generally report good news but not bad news in terms of information disclosure, conceal some important unfavorable information, and often overestimate profit indicators.Once the stock is listed and issued successfully, it will issue a statement to change the profit forecast or issue a so-called apology statement to cover up the mistake.

(Section [-]) The basic skills of the stock market

The most basic function of the stock market is to provide a venue for the circulation and transfer of stocks so that the issuance of stocks can continue!If there is no stock market, the issuance of stocks will be difficult or even unsustainable, which is determined by the basic nature of stocks.When an investor chooses bank deposits or purchases bonds, he does not have to worry about the liquidity of the funds.In any case, as long as the agreed time limit is reached, he can recover the principal and interest at the agreed interest rate. In particular, the bank can also get a small amount of interest in addition to recovering the principal, so there is no problem in realizing the investment at any time.But the stock is different. Once you have purchased the stock and become a shareholder of the food industry, you can neither ask the company that issued the stock to withdraw its shares, nor ask the issuing company to redeem it.If there is no place for the circulation and transfer of stocks, the funds for buying stocks will become a dead money, and once the shareholders need to use the funds urgently, the stocks cannot be cashed. This means that people have worries about buying stocks, and the issuance of stocks will When difficulties arise, with the stock market, shareholders can transfer their stocks on the stock market at any time, and cash out the stock pairs at a fairer and more reasonable price, turning dead money into living money.Therefore, the stock market provides a basic place for the circulation and transfer of stocks, and provides a guarantee for the issuance of the primary stock market.

certificate.In addition, since the transaction price of the stock market can more objectively reflect the supply and demand relationship in the stock market, the stock market can also provide a reference basis for the issuance of stocks in the primary market in terms of price and quantity.

The second major function of the stock market is to reduce investment risks and protect the interests of investors.The risk of stock investment mainly comes from three aspects: one is the poor management of the company that issued the stock, the other is the drop in stock price, and the third is fraudulent stock issuance.

The second major function of the stock market is to reduce investment risks and protect the interests of investors. The risks of stock investment mainly come from three aspects: one is the poor management of the company that issued the stock, the other is the fall of the stock price, and the third is the fraudulent stock. issued.

(End of this chapter)