Hello readers, we are happy to announce that our team of MoneyWiseMind.com launched a new section “Investing Insights: Weekly Q&A for Stock Market Newbies”, to spread the basic stock market knowledge to the beginners.
This is your go-to resource for demystifying the stock market from the scratch. Each day, we will present 10 carefully curated questions with answers that will cover essential concepts, strategies, and terminologies. Whether you have just entered into the market, or trying to starting your stock market journey, or looking to strengthen your foundation, our weekly post will guide you through the basics and beyond, making investing accessible and understandable for everyone. Happy reading.
Day 58: Basic Stock Market Concept
What is a “Pump and
Dump” Scheme and why should Beginners be wary?
Imagine a small, thinly traded stock getting hyped online with rosy
promises—this is the pump. People buy in, and the price shoots up
based on hype, not real value. Then, insiders suddenly dump their
shares at the peak, causing the stock to crash. Meanwhile, late investors get
hurt.
This tactic is outright fraud—markets regulators around the world, such
as SEBI in India, have busted many such cases. In fact, a recent sting in India
uncovered a ₹3 billion pump-and-dump involving shell companies and agro-tech
stocks.
Be sceptical of unsolicited stock tips. Stick to reliable info and
fundamentals.
What does “Momentum
Index” mean for Newbie Investors?
A momentum index tracks stocks that are rising
fast—those with strong recent performance. The idea: stocks that go up tend to
keep going up for a while. Momentum investing rides this trend.
Momentum strategies can yield quick gains—but they also reverse fast.
For example, in 2024, such stocks outperformed the S&P 500—but investors
warned of cooling off ahead.
What is Capital
Market, Simply Explained?
Capital markets are where companies and governments raise
money by selling stocks (ownership) or bonds (debt). Investors supply capital,
and issuers receive funds to grow. These transactions happen in both primary markets
(new issues) and secondary markets (trading existing shares)—mostly happening
electronically today.
As a beginner, you participate in secondary markets for your
investments—but your money ultimately helps companies grow.
Who or What is
OPEC, and why does a Newbie Investor care?
OPEC (Organization of the Petroleum Exporting Countries) is a group of
oil-producing nations that coordinate output to influence global oil prices.
Formed in 1960, its members include Saudi Arabia, Iran, and others.
Oil prices impact energy stocks, transportation costs, and the overall
economy. When OPEC cuts production, prices often rise—and that ripple can
affect many sectors you invest in.
What are Housing
Finance Companies (HFCs) and why do they Matter?
HFCs are lenders that specialize in home loans, offering mortgages, home
renovation loans, and construction funding. In India, they’re regulated by the
National Housing Bank (NHB). Compared to banks, HFCs often offer more flexible
loan options, especially to self-employed people.
HFCs play a key role in making homeownership accessible. As an investor,
you might explore investment opportunities in well-managed HFCs or simply
understand the housing finance ecosystem better.
What is a Risk
Premium in Investing?
Risk premium is the extra return investors expect for taking on risk compared
to a “safe” option, like government bonds. For example, if bonds yield 3% and
you expect 8% from equities, your risk premium is 5%.
Understanding risk premium helps you judge whether a potential return
truly rewards the risk you take.
What is an “Insurance
Float,” and why does Warren Buffett Love it?
Insurance float is the money collected as premiums that hasn't yet been
paid out for claims. Insurers hold this cash and invest it in the
meantime—earning returns from money they don’t own. Warren Buffett famously
used insurance float to make smart investments over decades.
Float enables insurers—and investors who understand them—to tap a unique
source of long-term capital.
What Exactly is a Hedge
Fund, Explained Simply?
Think of a hedge fund as an exclusive investment club—run by professionals—where
wealthy individuals or institutions pool their money together. These managers
then use a mix of advanced strategies—borrowing to invest more than they
actually have (leverage), betting on stocks going up or down (long/short
trades), and engaging in arbitrage or swaps across different assets—to aim for
strong returns in rising or falling markets.
Notably, hedge funds typically require big entry tickets and are open
only to accredited investors—people or institutions who meet certain wealth
thresholds.
What is Financial
Statements?
Financial statements are the report cards about a company's
financial conditions or health.
Financial
statements are of three types:
Income statement: It indicates a
company's profit or losses and actual income.
Balance sheet: A summary of a
company's assets, liabilities and equities.
Cash flow
statement: It shows the inflow and outflow of cash in a company. There are two
types of statements also. They are standalone statements and consolidated
statements.
What is Current Account
Deficit?
When a country imports more than it exports the difference is called
Current Account Deficit.
It happens when a country spends more on goods and services from abroad
than it earns from selling its own products to other countries. It's a regular scenario
in an economy. But excessive deficit can create concerns. It indicates that the
country is more dependants too much on foreign capital which is not a great
sign for the economic health of a country.
If you have any other questions in your mind relating to stock market basics or need any clarification, please put your query into the comment box, We will try our best to clarify the same
Disclaimer: The information provided on MoneyWiseMind is for educational and informational purposes only. It is not intended to be financial advice, and you should not rely on it as such. Before making any financial decisions, you should consult a licensed financial advisor.
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