The stock market is a hive of activity for traders and investors alike. This fiercely competitive global arena is teeming with buyers and sellers of all sorts of financial instruments. Everyone is chasing one thing: Profits. The markets are fully integrated with the world’s demand and supply of commodities, indices, currencies, and stocks – it’s a miasma of organized chaos. And yet, everyone wants a piece of the proverbial pie. For the uninitiated, the stock market is a confusing morass. What financial instruments to pick? When to buy and when to sell? What strategies to employ, and how much to invest. Such elements border on the realm of rocket science – fortunately, it’s nothing like that.
Stock Market 101 – A Lesson in Simplicity
Whether you’re a high impact player, or a low impact player, a keen grasp of the stock market goes a long way towards generating your desired outcomes. Remember: the stock market is a volatile arena. Demand and supply considerations directly impact pricing, as do a myriad of other factors including geopolitical uncertainty, interest rate movements, inflation rates, and other macroeconomic considerations. The best way to begin is by examining the financial instrument you are interested in. Perhaps it’s the USD, the Dow Jones, gold, or Facebook stock. Whatever your bent, take the necessary time and make the effort to learn as much as you need to know about your chosen investment.
It’s hard to understand the market mechanics of the entire market. Even the best and brightest minds have failed in that endeavour. Every listed stock is part of the greater stock market. The technical and fundamental factors that determine the intrinsic value of a stock, the market value of a stock, and the demand for a stock should be thoroughly understood before any trades or investments take place. A classic example is bank stocks. In the US, the Federal Reserve Bank recently moved to hike interest rates on Wednesday, March 21, 2018. This has far-reaching implications for the banking and financial sector. When interest rates rise, the profits that stand to be generated by big banks rises accordingly. Therefore, a savvy investor would go long on bank stocks like BAC, WFC, C, and the like.
Do Stock Markets Follow Linear Economic Theory?
A caveat is in order: Nothing is ever linear in the stock markets. Sometimes, the stock markets will crash and demand for gold will plunge too. This defies economic wisdom which states that the opposite should take place. Nonetheless, the overarching rules of engagement indicate that rising interest rates are good for financial stocks. On the flip side of the coin, rising interest rates are bad for the stock markets. This presents a dilemma of sorts to entry-level investors. Perhaps you are wondering why higher interest rates tend to drag stock market volumes lower? Think of all the companies that are currently purchasing machinery, equipment, or simply paying their creditors through the supply chain.
Most companies do not have all this money available in the form of cash – they have to borrow through various lines of credit. Once again, higher interest rates translate into less personal disposable income, and lower profits with these companies, and downward pressure on stock prices. Banks are the exception to the rule, since they are the ones lending all the money. One of the hottest sectors in recent years is technology stocks. The NASDAQ composite index is home to some of the most successful tech companies in the world. While Facebook recently experienced a loss of confidence through the way it shares information, the overall tech sector has blossomed.
Are there Hot New Stocks Out there?
Fortunately, there are now many value propositions when it comes to tech stocks. One of them that warrants particular attention is DBX. Many folks use this cutting edge technology, but are quite aware that it is now a listed stock. Dropbox’s stock price is currently holding steady at $31.25 per share since listing recently. It has a market capitalization of $12.42 billion, and as a newly-listed stock has incredible upside potential. It is not plagued by the same bugbears that Facebook is now facing – i.e. information dissemination without user knowledge, and it features as a refreshing new entrant into the investment arena. In the lead up to the Dropbox IPO, many tech companies were struggling to make headway.
Consider the poor performance of stocks like Snapchat (SNAP) which have been struggling since inception. According to SEC documents, Dropbox had originally expected its share price to be in the region of $18 – $20, and before that it was $16 – $18 per share. The premium price of $21 per share was a welcome surprise. Based on that, it’s market valuation at inception was a $.24 billion. On Friday, shares increased by 35.6% on the NASDAQ, ramping up the company’s market valuation to a sliver under $10 billion. In 2007, Dropbox raised an estimated $600 million.
The IPO is headed by 12 banks, notably J.P. Morgan and Goldman Sachs. There are some 500 million registered users of the service, and 11 million of them are paying subscribers. Among them are many corporate users. Dropbox has several competitors, including cloud storage software giants Amazon, Microsoft, and Apple. This cloud-based storage system recently launched on the NASDAQ (Friday, 23 March 2018). DBX was one of the most highly anticipated new tech stock offerings and was up 36% from its IPO price of $21. DBX had a strong first trading day and warrants careful consideration from investors.