Whats The Purpose Of The Stock Market For Businesses, As Well As The Average Investor?

The purpose of the stock market is for both companies and investors to make money. Starting and running a company requires cash. there are many ways to get cash. One of them is becoming a publicly traded company and selling a percentage of your ownership. That’s the business side. And it’s a business side that several prominent social media companies have taken or are about to take: that’s you Facebook, and Twitter!

But for us, the average citizens, we don’t see that side. We buy and sell stocks hoping to make money. But, obviously that’s not always not the case. Ill talk about the business side first. Which is important for any investor to know, as well if you want raise money for your own business some day.

Going Public Provides You With Cash Virtually Overnight

If you own a company, the purpose of the stock market for you is selling stocks, which is a great way to raise funds quickly. A business owner can sell up to 49% of his company and still retain ownership. It is a great way to raise funds quickly, thus you can expand your business quickly.

You must weigh the pros and cons and speak with an underwriter before doing this. An underwriter is basically someone who helps you through the whole process and in the end writes you the check. They value your company, do the market research, and finally find you investors.

The Down Side To Becoming Publicly Traded

But, obviously there is a down side. But many businesses have decided that it’s worth it. As well as not retaining complete ownership, you must also open your books to the public. When a company goes public, it offers an Initial Public Offering, or an IPO. All this means is that this is their first offer to the public to buy part of their company. The underwriter works with the business owners to decide how many shares to sell and at what price.

At a later date the company can sell more or buy back some of they’re stock, thus increasing or decreasing they’re ownership in the company. When a company feels like they’re value is going to go up, it is wise for them to buy back shares. The public knows this, thus it increases the investors’ faith in the company and usually the remaining shares up.

Don’t get this confused with insider trading. You are not allowed to trade based on information that is classified or has not been released to the public yet. This rule applies to company owners, employees, or the general investor. So basically, everyone. I’m sure you wont come into this situation. But just in case you do, its better to not make that extra money, than wind up in jail.

Why Buy Stocks?

When you buy a share in a company, you literally own part of that company. A share can be over-valued or under-valued. You find this by with the price per sales ratio of the stock. You find this by multiplying the number of outstanding shares by the price per share. This gives you the market capitalization, or the market cap. You then take that number and divide it by the company’s revenues. You take that number and compare it other companies in the same industry. This is fundamental analysis. I don’t dabble in this. But it is good to know and a useful tool.

Stocks can also be over-bought or over-sold. That is determined with the RSI oscillator, which I use every time I research stocks. I am a technical investor. That means I look at the charts of a company’s stock.

Most newbie investors first hear about studying a company’s fundamentals. That is called fundamental analysis. The fundamentals are what a company must publish quarterly in order to retain their membership on a stock exchange. This was implemented with the securities and exchange act of 1934. If investing is the purpose of the stock market for you, be safe and good luck.

Be Ahead Of The Curb

If you are an investor, the purpose of the stock market for you should be to beat the hoards of investors to buy and sell before the general public catches on.

curbAs I said before, when you buy a stock you are literally buying part of that company. Stock value is determined by many things. One of them is what the average investor sees a stock as being worth. Thus, a stock price can be inflated or deflated, as I discussed previously. The average middle class person comes in hoards to buy a stock that looks exciting and looks like its going up. Real investors know that they can make money in an up market or a down market. Experienced investors also buy before the public catches on and sells short after the stock has become inflated and is on its way back down.

I’m not saying that you should send your money to a broker. Just Because they are professionals, doesn’t mean they are going to make you money. I’m not saying that stock brokers are your average uninformed investor. But since they trade conservatively, they usually go with the flow of what everyone else is doing. Brokers enjoy using heavily fundamental analysis. They would be good for you if you truly have no idea what your are doing and you are looking to invest in the long-run.

If you want to be a long-term investor, I do recommend fundamental analysis. But, if your looking to be an active trader, like myself, I recommend technical analysis.

So, investors making money is the second purpose of the stock market.

If You Don’t Succeed, Try Try Again

So, the purpose of the stock market basically boils down to businesses being able to get quick cash, with some sacrifices and us being able to make money by buying part of a company. Its good to know how and why stocks work. But don’t spend too much time researching this. Focus on your bottom line, which includes technical analysis and possibly fundamental analysis. The best way to learn in by making mistakes. So, do your research, get in, make mistakes, and repeat. Whatever the purpose of the stock market is for you, good luck.

So, Why Buy Stocks? For Today As Well As Tomorrow

Why buy stocks? This is an important question. One that I often hear and when you start trading you will hear as well. There are two main reasons. One, to make money. The other, is for the priceless knowledge that you tend to pick up automatically just from trading.

To Make Money, Of Course

moneyWhy buy stocks? Why of course to make money. Right. Yes, this is true. But there are many ways to make money. And if its only about the money for you, you may want to work with a full service broker. This may not be the important important reason, but without this factor, there would be no stock market.

Yes, you buy stocks to make money. You can make money in a down or an up market. When you buy a stock hoping it will go up, its called buying long. When you want a stock hoping it’ll go down, its called selling short.

You can also make money with stock options. All stock options are connected to a stock. When you buy an option, there is someone else on the other side selling it. This is not like a public company, when you buy stock outright. This is another investor involved. Anyone can sell an option. But, usually the person selling has to have the money already in the brokerage account, just in case the deal goes sour for him.

Before you tackle the selling of options, you should have some experience with buying options, as you can lose a lot of money this way. When you are betting on a stock option going up its called a "call" and when you bet on it going down, its called a "put".

Learn Today, Profit Tomorrow

Another answer to "why buy stocks?" is for the experience and education. For me, and for most other investors, its not all about the money that your making today. One of the reasons I’m trading today it for the priceless knowledge that I will receive. When I’m older and am playing with more money, I will still use most of the same things I know now to make larger profits.

The only difference will be that I will be trading larger sums of money. So its good to get started even if you only have a few hundred to work with.

Find Out What Makes A Business Really Tick

You also tend to catch onto the inner-workings of a business. You begin to understand how a balance sheet works and how money must be divided in order for a business to be successful. Also, when its good to go into debt and just how much debt is too much.

This is valuable knowledge that is important to learn. You may want to use this information some day in your own business. Also, of course the more familiar you get with this information, the easier it will be for you to spot a good, solid company.

Now Your Armed With The Answer

So, the next time someone asks you "why buy stocks?", you can let them know your reason. I am passionate about stock investing. The stock market is real. You can dig deep into a company to see what you are getting yourself into. You can watch the news and find new investment ideas. The stock market is connected to most everything around us. That’s my reason.

Making Progress with SBI

It’s been months since I started working with SiteBuildIt, and I’m sure that you’ve been keeping uptodate with the posts and pictures of my site(s). But I haven’t really told you much about my experience of the program, and the different phases I’ve gone through.

The Basics

It took quite a while to digest the material from the SiteBuildIt program from the purchase date, and that’s not a surprise, really. I didn’t start building the site until I was comfortable with the initial steps of the program, and had completed my basic keyword research.

The Action Guide in SBI is crucial to the whole learning process, and you can read much of it yourself, though it may not always make much sense if you don’t have access to the tools mentioned! But it’s a thorough treatment of the basics of business building, and one that many new members skim through as they race to Chapter 6.

It’s in the first few chapters that I wrestled with the choice of my site concept:  blogging, coffee, or Taiwan. In reality, I could have chosen all three of them, and (if I have time) I may well pursue the others, the numbers all turned out to be really good.

So in the first three months, I decided that my concept had legs, and was in some demand using the numbers provided by the BrainstormIt Tool. Then I worked on the keywords choice, and came up with a basic siteplan that really helped propel me to answer the question: Can I make money with the concept?

Can I make money with the concept?

Actually, the question is really a lot different from the typical  yes or no questions you might expect. Even lower keyword demands may be profitable if you have the right skill set, and so it was actually not such an obvious to answer.

But I did identify several methods by which I might generate some revenue: Display Ads, Affiliate programs, and Display Links, of which I anticipated that I might make more money from Display Ads at first, but that Affiliate products may be better and more profitable long term.

False Starts

So I went ahead, all eager and registered my first domain; started work on the Look & Feel of the site, and wrote my first articles. Unfortunately, I discovered that I had registered a name with hyphens that had an active unhyphenated variant on the same subject.

It took a while to come to the painful decision to start over, but I’m 100% glad that I did. I did lose a little traffic, and some money but I felt that removing the sword of Damocles was the responsible thing to do.

In January, I refounded the site, diverted all traffic from the original domain, and redid the entire site. It also coincided with some technical problems at SBI that needed fixing, but within about four days, I redid the entire site, and it started building from there. I only had about 25 pages at that point, most of which was policies and boring stuff, totally not related to the subject I chose.

Where now?

It takes a while to build content that is worth reading, but the biggest and most important tactic is finding the keywords for articles that you need to write. You need to find keywords that have sufficient demand and limited supply for you to have any chance at having realistic traffic levels.

I actually spent quite a while trawling sites with traffic issues, and was confident enough with my choices to realize that it was perhaps the MOST important choice you could make.

Choosing a word with sufficient demand and limited supply really is matching a product in demand with a market! But it’s amazing how often website owners fall down on this basic step by selecting keywords that had outsize competition, and limited traffic. In other words, the owners are going to have an invisible placement because there’s just too much choice in the market place.

Commercial Intent?

The second issue is one that I also failed to grasp properly for my first few websites: commercial intent. In other words, my good buddy Steve who’s developing his business niche very nicely now wrote:

"Commercial Intent – Are people buying in that niche (check Big G’s keyword tool to see if people are spending on Adwords). Search your keywords and read the Adwords and see how others are monetising the niche." – personal email.

But having some tools to assess commercial intent really REALLY helps a lot! I found my education sites really weren’t what people were spending money on, at least with the keywords I chose. I guess checking people’s wallets to see what they really do vs. what they say they do is paramount!

Knowing that people are looking for things to BUY really made a lot of sense, instead of chasing customers with things to sell that they didn’t particularly need, had no interest in, or didn’t trust you enough to buy through you.

10% of $1 is not much: 1% of a million is a lot!

The third issue that I’m now facing is choice of market: I opted to choose a market with a lot more demand, but in doing so, I may have chosen a much smaller pie to get a share of than I could otherwise have chosen.

However, I have resolved to build out the site as much as I can, co-opt the more lucrative keywords and try to take a chunk out of the larger market. I’m not sure that I will be successful, but I have already set myself several long term goals with the site:

I would like to get 7500~10000 page views a month at the end of phase IV. I hope that I will have about 10c per unique visitor meaning that I should earn about US$350~500 potentially. At that point, I guess I may have a site with about 200 pages or so of detailed, relevant coffee related materials.

So where are we now? I mean, NOW!

Phase I: the goal was to create 51 pages including 35 pages of content, get to about 20 uniques per day, and have a good set of keywords with potential.

In fact, I reached that goal around March 22nd, though I have yet to tidy up a few articles properly. Traffic has been building well, so far.

Phase II: this phase is just an interim phase. But I figure it’s pretty important to the site’s overall success: I want to improve the content of my existing pages ( I don’t necessarily mean rewriting the content, though it’s possible). I want to:

  • Improve the meta information, esp. the choice of secondary keywords, and change the meta description to something much more engaging. I’ve already changed four pages, and partly changed a fifth.
  • Improve the on-page features to create a page where readers will linger a little longer to watch a video; look at pictures; read a related article or search for an additional article to read. The pages on the top of my sidebar already meet most of those criteria.
  • Build out the backlinks to the site by carefully selecting directories, websites, blogs, article directories, and other relevant locations so that I can get some decent in-pointing links. I will also expand some outpointing links to other sites, but I’m very picky about those.
  • Beginning Monetization: I’ve already selected three or four candidates for monetizing the site, including Adsense,  Infolinks, and Popshops which I will experiment with. The most crucial in the short term is demonstrating that it is POSSIBLE to make money with the niche I have chosen. To that end, I’ve added Adsense to about 10 pages that are the most visited T2/T3 pages or that are linked from the sidebar.

Even in Phase II, I’ll be adding some new content occasionally but it will be some time before I complete Phase II properly … I still have over 40 pages that need revised, and I only have a little time each day to do the entire project, so it’s going to take some time!

Phase III, IV, and further…

Once in Phase III, I’ll be expanding the content to over 100 pages, and I hope to have that completed by the anniversary of the site on December 21st, 2010. I’ll also be expanding C2 options, soliciting more aggressively for submissions, and so on. I’m hoping that by that point, I’ll be earning $50.00 per month for at least the second month, but I’m not confident about monetizing the site properly yet.

Phase III is much clearer than Phase IV at the moment, so I’m going to worry about Phase IV only when I’m nearing completion of Phase III! This site on SBI is the most ambitious project I have ever undertaken, but with good competition out there, I feel I could really achieve something superb, rewarding, and remunerative in the long run.

Wish me luck.