VCE Stuff > VCE Economics

Help Jess. O understand stuff about economics/ business and such.

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jess3254:
Another question:
How does investing in shares work?
My understanding:
People buy shares of a company, wait till the price of shares are high (which is influenced by...presumably company profits? But that confuses me too, because ABC learning centres are still making profits but have died on the share market), then sell it and make money?

I feel so ignorant :(

marbs:
I'l let Cost go into to detail, because his first answers were so informative.

But most of your questions relate to the fundamentals of eco which is Law of Supply and Demand.

If Demand is high, and supply doesn't increase with it, the price of a good will increase
If Supply is low, and demand doesn't decrease the price will increase.

Suppliers are off course wanting maximum profit, while Consumers are wanting the cheapest prices, when they agree on a point its called the equilibrium point.

This stuff is all the basics, but applies for everything we've been learning throughout the year.

---------------------------------------------------------

Buying shares, is like buying part of a company. You are a shareholder, and want that company to maximise its profit.

Becoming involved in the stockmarket is all speculation, and thus runs by Supply and Demand.


"Say you're reading the Financial Review, and something is mentioned about a company expanding production, or getting huge demand for their goods", demand for this good will be high, and thus if supply does not match the demand, the price of the share will increase.

Hope that helps a little

costargh:
This is my understanding:
Shares literally mean you are a part-owner of the company in which you are investing. You may only have a 0.001% stake in the company but your purchase of shares helps finance the operations of the organisation you are investing in.
Company profits are one factor that influence the price of shares. Current company profits (which publicly-listed company must disclose) may cause an increase or decrease in the value of shares because if a company reports a 40% increase in profits it will be in high demand by investors, and supply of shares may not be adequate to cover the purchase of shares at their current level (eg $3), so therefore the value of the shares increases to a price where the equilibrium (Demand= Supply) price is met. (eg. $3.20)

Speculation is a big part of the share market. With ABC, there current profits may seem reasonable, but in the LONG-TERM
they are seen to be highly risky because they have a large amount of debt which they may not be able to repay  (due to excessive borrowing to finance expansion plans abroad) which could affect their profit in the long term.

Also, the value of assets that a business owns affects its value which is why some businesses can have a share price around $3 and be posting similar profits to a business with shares around $10; the assets owned by the business worth $10 a share is valued higher than those of the other business.

jess3254:
Thanks guys :)

jess3254:
sorry another question: :P
Can the incumbent Kevin Rudd + Government really do anything about interest rates? How much of an influence does the government have on inflation + interest rates? And, what measures could they implement to prevent a rise? (If that makes sense...)

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