Winners and losers in rising stock prices: What are the animal spirits?
Hello everyone! I'm John. Today's topic may be a little difficult, but I'll explain the relationship between "animal spirits" and rising stock prices in an easy-to-understand way even for beginners. Does stocks sound difficult? Don't worry! Everyone was a beginner at first, so let's have fun learning together!
What is an animal spirit?
"Animal spirits" literally means "souls of animals." However, in the world of economics, it is used in a slightly different sense. It is the optimistic psychological state of investors and entrepreneurs who, without any basis, "feel like things will go well!". It is a term coined by the economist Keynes. For example, have you ever heard a friend say, "I'm sure this store will be a hit!" without any basis for it? That is exactly what animal spirits are (laughs). When stock prices rise, animal spirits often have a big influence.
Who are the winners from this stock market surge?
So, who are the "winners" from this recent rise in stock prices? The original article lists several points.
- Retail companyIt may be surprising, but retailers are the winners. That's because when stock prices go up, people get emboldened, they open their wallets, and they buy all kinds of stuff.
- People who didn't expect a recession：Rising stock prices mean that the economy is improving. In other words, the "winners" are those who continue to hold stocks, believing that "the economy will not worsen!"
On the other hand, who ended up on the "losers" side?
Unfortunately, there are some people who have become "losers."
- Wall Street Analyst: Some analysts on Wall Street (the financial district in New York, the heart of the American economy) predicted that stock prices would fall. However, stock prices actually rose, so their predictions were wrong and they became the "losers."
- Pessimistic person: People who were worried about whether stock prices would rise and sold their stocks. After all, they may have lost a bit of money.
Behind the Rise in Stock Prices: What is a Share Buyback?
Behind the recent rise in stock prices, something called "stock buybacks" seems to be an influence. "Stock buybacks" are when a company pays its own money to buy back its own company stock. It's like a company appealing to everyone that "our stock is worth more!" When a company buys back its own stock, the number of shares on the market decreases, making it easier for the value of the stock to increase.
Private equity in your 401k?
The original article also uses the phrase "401k with private equity." 401k is an American defined contribution pension plan (a pension you manage yourself). And private equity is investing in stocks of unlisted companies. In other words, with your 401k, you can now invest in promising companies that have not yet gone public. This is a bit of an advanced topic.
Stocks and Sentiments: Price and Sentiment
Stock prices are heavily influenced not only by corporate performance and the economic situation, but also by people's emotions. The original article uses the words "price vs. sentiment." "Price" represents the actual value of a company, while "sentiment" represents investors' emotions (optimistic or pessimistic). When stock prices rise, this sentiment often has a big influence. If everyone thinks "stock prices will rise!", stock prices are more likely to actually rise, and vice versa.
My perspective
After reading this article, I realized once again that stock prices are influenced by many different factors. Psychological factors such as animal spirits cannot be ignored, and corporate strategies such as share buybacks are also important. It is really difficult to predict stock price movements, but it is important to gather various information and think about it in your own way.
This article is based on the following original articles and is summarized from the author's perspective:
Animal Spirits: Winners & Losers From the Stock
Market Rally