Wednesday, November 19, 2008

Stock Market Crash

I won't pretend that I'm a market maven or anything near an expert on stocks, but as a layperson, what causes a stock market crash?

Is it simply the act of people taking money out of the stock market?

Is it the problem that arises when traders sell stocks without any upfront capital?

I thought buying a stock was purchasing an equity stake in a company. The price is a function of demand. But since I don't want to own any stock right now, so the stock market should be zero, right? I remember some ratios like price to book value, price to sales, EBITDA. There must be a point where the price of a stock is undervalued (forget the projected growth rates since they are so inexact).

It's all really quite boggling for someone as simple as me.

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