Mr.

Mar 16, 2010

Stock Simplified Writes
by: Shaun

Let me answer that with an experience from my own life. I know someone who wanted to open up their own store. The cost of creating it was several $100,000s, but he did not have enough. The good news is that he found someone who was willing to lend him money, in exchange for owning a good sized percentage of the store.

Stocks work similar to that, obviously once a company goes public they are already up and running meaning there is no need for start up money. But ideally a company can take the money received and use it to expand operations, open new stores, etc.

Once they receive money they have no way to make more money from a stock holder directly, but hopefully that money has been reinvested into the company so that it can grow and profit over and over again from that one incident.

In the same way that my friend would not have been able to open up a store and make profits without the investor, public companies cannot increase their profits unless they have the money to do so, this comes from stock investors.

The stock itself, once it is sold is simply worth as much as people are willing to pay for it. So, while it is not directly tied to how fundamentally strong a company is, people are willing to pay more for stock in stronger companies.

For a trader it is all about buying and selling stock, the company is just there to back up its value.

Mr.

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