Why stock markets matter for you

BBC, Stefan Armbruster

The saying goes: ‘Don’t invest what you can’t afford to lose’.

But as stock markets fall, it is not just people who own shares who lose out. When the bears replace the bulls –in other words, when the market falls- it affects almost everyone because stocks and shares have become an integral part of almost all our financial lives.

There are a variety of ways in which stock market movements impact on our lives. The upbeat side of the growth in share ownership is that when the stock market goes up, consumers with shares feel richer, they borrow more and they spend more. But just as the stock market can go up, it can also go down. Usually the first to react to this are the institutional investors who are involved in the financial markets on a daily basis.

The internet boom is an example. Many personal investors felt they were burnt by the popping of the dot.com bubble in 2000. By the time they got around to selling shares in any number of failing internet base companies, the big City investors had already pulled out of the market. The institutional investors did not escape unharmed either. And the hits that they took also have an indirect, but potentially serious effect on many people’s financial health. Any pain suffered by these institutional investors impacts on the returns paid on pensions, savings accounts or the interest charged on mortgages.

For individuals with a more direct interest –say day traders attracted by the tech boom- share holdings can be used as collateral to borrow money. But if the value and income from shares evaporate and the bank calls in the loan, the result can be big losses or personal bankruptcy. Meanwhile pensions linked to the stock market, like the ones being promoted by the UK government, are not immune. Unlike the state pension, which is paid out at a rate set by the government, investing in a private pension indexed to the stock market can increase the value of the contributions dramatically, but they can also be erased.

Your job can also depend on the markets as companies use their valuation and the issue of new shares to raise capital to expand. If they are unable to do this then they have to find ways of increasing the company’s value to attract investors. The key tool they use is to cut jobs.

1 According to the text, are the following statements true or false? Nearly everybody suffers the consequences when share prices go down. Institutional investors are usually slower to sell when the market falls than personal investors. The value of pensions paid by the government can go up and down with the stock market. Companies can acquire new capital for expansion by issuing new shares. Companies sometimes make people redundant in order to increase the company’s value (and its share price). 2 These expressions have different meaning according to the situation they are used in. what meaning do they have in this text? a to lose money                               b not to lose money to be burnt to escape unharmed to suffer pain to take a hit 3 Find phrases in the text that mean the following: to sell all your stocks to demand that a loan is repaid to encourage people or companies to buy shares  to fire people

Answers

1 According to the text, are the following statements true or false?

1. T
2. F
3. F
4. T
5. T

2 what meaning do they have in this text?

1. a
2. b
3. a
4. a

3 Find phrases in the text that mean the following

1. to pull out of the market
2. to call in a loan
3. to attract investors
4. to cut jobs

Glossary

to lose out = to be the loser, fail to benefit from

the bears = shareholders who sell because they expect the price to fall

the bulls = investors who buy shares because they expect their price to rise

stocks and shares = securities representing part-ownership of a company

the upbeat side = the optimistic, cheerful, positive, hopeful side

to borrow = to take as a loan ANTONYM to lend = to give sb a loan

institutional investors  = financial organizations that own a lot of shares

on a daily basis = every day, every weekday

bubble = rapidly rising share prices, followed by a quick collapse (= the popping)

to get around to (selling shares) = to manage, deal successfully with a situation

to pull out (of the market) = to leave, get out, withdraw from

unharmed = intact, undamaged, unbroken

to take hits = to be attacked, to be beaten

day trader = a speculator who buys and re-sells shares in a very short time, often just a few hours

collateral = assets (= activos) a borrower uses to secure or guarantee a loan

to call in a loan = to require payment of a loan

losses = deficit ANTONYM gain, profit

bankruptcy = when you have no money to pay your debts, so you have to sell your assets

to pay out = to pay a large sum of money

rate = ratio, scale, standard, percentage (= tasa)

to erase = to delete, dissolve

to issue = to offer securities for sale, to financial institutions and the public

to raise capital = to get money from investors with which to run a business