Stock Markets Rising Relentlessly

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It likely cannot escape your notice that stock markets across the globe have been rising consistently, with many hitting new all-time record highs week after week.

However, it is worth exploring why this is happening and how you can get in on the action.

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Understanding the stock markets

Stocks, or shares as they are known in many countries, are essentially tiny pieces of companies that are bought and sold on a publicly traded exchange.

Typically a company will cut itself into millions or even billions of pieces. Each piece is called a share.

The total value of all the shares of a company in circulation is called the company’s market capitalization, or market cap for short. This is the metric on which to value the entire company.

Stock markets indexes are a compilation of selected high value, commonly sought after and/or top performing companies.

Amongst these worldwide are the US Dow Jones Industrial average, which contains the top 30 American industrial companies, the FTSE 100 UK index, which contains 100 companies with the largest market cap, and the Thai SET and SET50 indexes, which comprise the biggest popular Thai companies.

Valuing stocks and shares

There is an art to valuing stocks and shares. What will make a given share price materially different tomorrow or next month compared to its price today.

Individual companies will often pay dividends and in any case will report to the market their income and profit. Ultimately this decides the price. But there is more to it than simply a company’s earnings.

Sentiment plays a big part. If share prices are rising across the globe then this is considered a bullish stance, which will support rising prices. A bearish stance is when prices are falling. A company’s growth potential will also be one of the elements in determining its value. Also the level of interest rates, currently very low, will dictate borrowing costs and overall consumer activity. So far markets across the world have gone up in virtually a straight line in one of the longest bull markets in history as central banks have managed to keep rates low for many years.

How do I get involved?

It’s very easy to get started if you haven’t dabbled in the stock market before.

In Thailand, you can buy into unit trusts that mirror the price actions of the SET or SET50 stock market indices. This can be achieved by going to a Thai Bank and asking to open up an asset management account. The units are not unlike shares but in this case they are units in a fund that tracks the index instead of an individual company. The unit prices are typically displayed at branches or on the banks website. The idea here is that you buy and hold the units and sell them once they have risen.

An alternative route is to open up a broker account and then you can buy and sell individual shares in individual companies. This is a more risky proposition since some individual companies can see sharp falls in their share price as well as sharp gains. Research in each company would be essential before venturing out. Many brokers can allow you to buy not only Thai stocks but those on the worldwide market, as well as take a position in the foreign exchange and commodity markets, all under one roof. Most broker accounts can be opened on line.

Trading or investing

Investing in the stock market usually defines the stance of buying and holding stocks without much active buying and selling. It usually suits buying or selling a stock index, although those with confidence to hold stocks in a single company for the longer term can also be considered to be investors.

Stock traders on the other hand are often looking to take advantage of price movement in single stocks or indices on a short term basis, constantly buying and selling and being quite active in locating deals that look good for just a few weeks or even days before liquidating.

Most brokers have live apps where you can track the up-to-the-second share price, index level and your profit and loss on any given stock market instrument. Trying to time the market is very difficult but there are plenty of more complex trading opportunities that we will cover in future issues.