Page 19 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes "No, whatever you do not manage to consume and stays as a surplus is also 'saving'. But
that is a lucky state to be in," my teacher responded.
"And that set me thinking...

If I can 'save' to consume at a later date, I can also spend more now if I know that I can earn
enough surplus to pay for it later..."
Just then my teacher's booming voice interrupted my train of thoughts... "Borrowing is
the opposite of saving," she announced. Now that was easy to visualize.
I had a classmate who was fairly irregular to class, spent a lot of time in the school canteen
and supposedly even bunked classes to watch the 'matinee'. How did he manage to pay for
all his nefarious activities? Well, he used to borrow money from a few friends of mine
who saved their pocket money. During the break, I manage to accost one of those friends
who had lent money to my classmate.
"I can understand why Ramesh (by the way that was my classmate's name) borrows from
you. But why do you lend him money? Can he pay back?"
"Look, I don't really intend to spend all my pocket money. I am saving up for a new cycle.
Money always burns a hole in my pocket. Hence, I lend it to him," he answered.
"Ramesh has a rich father, who is a family friend," he explained. "I know that I can get my
money back. Ramesh also knows that when he turns 18 he will look after his family
business and earn well. And then he will have no time to have the fun he is having now.
Hence, he borrows to spend," he added.

Learning for me again.
'Saving' is not consuming everything today and leaving something for tomorrow, whereas
'borrowing' is consuming more than what one has today, expecting to save more later to
pay up for the excess consumption now.
While 'saving' is being conservative and wise, 'borrowing' is being risky and foolish
unless for a basic need. Hence, it makes sense to borrow only when one is sure that in the
future he will be able to save enough not only to pay up for his borrowings but also to see
him through the days when he cannot earn.
What is 'investing' then?
This question bothered me till I had my first mug of beer from some bottles that we had
smuggled in from my friend's place (it belonged to his father who owned a liquor shop).
Oh boy! I loved it so much, the beer I mean. But soon an idea suggested itself to me. If
everybody starts liking it, the demand for beer is definitely going to rise. The growing
population will ensure that the demand sustains. Wouldn't then it make a lot of sense to
set up a company to manufacture beer? If demand drops then my friends and I can very
well step in! I had grown up finally from the days of aspiring to be a bus conductor to
wanting to own a beer factory now!

The next day, I started discussing my ambition with my friend's father. During the course
of our conversation, I learnt of the money needed to buy the fermenting equipment that
can produce beer for years to come.
By selling all the beer that can be manufactured, I can recover the initial money spent on
the business by the end of three years. Beyond that, the money that I'll make will be
surplus. That would be an awful lot of money.
Contd...

14 LOVELY PROFESSIONAL UNIVERSITY