"How does it really work?"
"I can’t understand."
Let me show you how the stock market works in a way a kid will understand.
May business idea si Juan.
Yummy Burger Inc.
Juan needs ₱50 to produce a burger and another ₱50 to buy a tables and chairs.
In total Juan need ₱100, kaso he only has ₱90.
So, he asked help from Pedro.
Juan: “Pedro, pwede mo ba ako bigyan ng ₱10, you’ll own 10% of Yummy Burger Inc”
Pedro said “Yes, I’d love to.”
At the end of the week, Yummy Burger Inc earns a profit of ₱20.
Since Pedro owns 10% of the store, Juan decides to share ₱2 to him.
The ₱2 my friend is what you call your Dividend.
Pero wait, that is just one way of earning.
Do you remember how much starting up the store was worth?
Tama ka dyan.
Maganda ang kita ng Yummy Burger Inc after one year, so naisip ni Juan to sell fries too.
From the profits of the business, he bought fries worth ₱50 at bumili pa siya ng isa pang table worth ₱50.
The store is now worth ₱200.
How much percent of the store does Pedro own?
Tama ka ulit.
One day, dumating si Jaime.
Sabi niya kay Pedro, “Gusto ko bilhin ang ownership mo sa Yummy Burger Inc.”
Magkano ibebenta ni Pedro kay Jaime ang ownership niya?
Ano ba yan math #@$#$%^
Isipin mo Mabuti, 10% ang ownership ni Pedro…
…the store is worth ₱200.
Pedro can sell to Jaime ₱20. He earned ₱10.
The ₱10 my friend is what you call Capital Appreciation.
Pero what if, ayaw ibenta ni Pedro pero pinipilit siya ni Jaime because he believes that Yummy Burger Inc will expand to 100 more branches in Metro Manila.
Jaime begs to sell Pedro’s 10% share.
This is interesting!
You know what Pedro was thinking?
He can sell it to Jaime for ₱20, for ₱30 or even ₱50. Teka pwede din ₱100.
This is because Pedro realized that the price of the stock is determined by Real Value and Perceived Value.
Real Value ay ang cost ng store.
Perceived Value is how much people are willing to buy it.
Remember investing in the stock market is a high risk high return venture.
But don’t let this stop you to build the wealth that you and your family desires.
Leave in the comment below.
What is your top 3 stock market question?