Nov 15, 2008
As far as I know (which by the way, can’t take us that far), the answer to your question lies in understanding what is the stock market and its history. So that would explain the long answer.
Simply put, it dates back to a time when man realizes that a way to raise funds without creating debt (through bank loans) to expand business is to sell stocks or partial ownership of the company in an agreement to divide the company’s profit to whoever buys the shares through dividends. So what our ancestors did, was to put up an organization (stock exchange) to bring the buyers and sellers to a listing of stocks and securities where trade can occur.
But that’s not the only way by which we can profit through the stock market. Man being man (smart but greedy), soon realizes, that profits could be made by re-selling the stock to a much higher price to others who saw value in a company. In short, a share is sold to a much higher price that is partly (if not purely) speculated on as it is based on partly (if not purely) predicting the company’s future revenues. The role of speculation itself explains the volatility of the share prices as shareholders may hold different views over the company’s future earnings.
Now, partly because of economic factors (that lead to companies closing down) and partly to fear and panic, share prices may experience a sharp dip (including those other companies who are fundamentally sound, as again, anxiety is one of the market’s driving factors). This is what we call a stock market crash. The possibility of some share prices as being undervalued is there during a crash.
So, in short, a crash is different from dissolution, in as much as the latter is different from re-organization and reinvention. IN AS MUCH AS a stock market dissolution is different from individual company’s liquidation. When you buy shares in a company, they have the obligation of paying you dividends, that is as long they are making profit (except of course when it's making negative revenues or stops operation). Concurrent closures of these listed companies is rather impossible, if not ridiculous.
Unless of course, it’s the end of the world.
As far as I know (which by the way, can’t take us that far), the answer to your question lies in understanding what is the stock market and its history. So that would explain the long answer.
Simply put, it dates back to a time when man realizes that a way to raise funds without creating debt (through bank loans) to expand business is to sell stocks or partial ownership of the company in an agreement to divide the company’s profit to whoever buys the shares through dividends. So what our ancestors did, was to put up an organization (stock exchange) to bring the buyers and sellers to a listing of stocks and securities where trade can occur.
But that’s not the only way by which we can profit through the stock market. Man being man (smart but greedy), soon realizes, that profits could be made by re-selling the stock to a much higher price to others who saw value in a company. In short, a share is sold to a much higher price that is partly (if not purely) speculated on as it is based on partly (if not purely) predicting the company’s future revenues. The role of speculation itself explains the volatility of the share prices as shareholders may hold different views over the company’s future earnings.
Now, partly because of economic factors (that lead to companies closing down) and partly to fear and panic, share prices may experience a sharp dip (including those other companies who are fundamentally sound, as again, anxiety is one of the market’s driving factors). This is what we call a stock market crash. The possibility of some share prices as being undervalued is there during a crash.
So, in short, a crash is different from dissolution, in as much as the latter is different from re-organization and reinvention. IN AS MUCH AS a stock market dissolution is different from individual company’s liquidation. When you buy shares in a company, they have the obligation of paying you dividends, that is as long they are making profit (except of course when it's making negative revenues or stops operation). Concurrent closures of these listed companies is rather impossible, if not ridiculous.
Unless of course, it’s the end of the world.
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