The Stock Market for Dummies

An Inside Look on How the Stock Market Works

Investors+buy+and+sell+stock+at+the+New+York+Stock+Exchange

Scott Beale

Investors buy and sell stock at the New York Stock Exchange

The stock market can be a very complex way to make money and increase your capital. Yet, in its simplest terms, it can be easy for anyone to understand.

The most difficult task you have to overcome in the stock market is finding the right companies to invest in. The easiest task is watching your portfolio grow.

Before you can start investing, you have to know what a stock is. A stock, or share, represents ownership in a company. A stock also represents a claim and ownership over its assets and earnings. A person who owns shares in a company is known as a shareholder. Therefore if a company has 1,000,000 shares and you own 100,000 shares you own 10 percent of that company. Shares also allow you to have a say or vote in a company. Most smaller companies or small local businesses won’t have stock or shares available for purchase.

What makes a company go public? First off you have to know that going public means selling stock to the public to grow their business and capital. Here’s a good example: Say your best friend Suzy just started selling jelly beans. Everyone likes her jelly beans and she makes decent cash, but wants to expand or grow her business. In that case she would either go public or take a large loan from the bank. Most companies don’t take a loan because of the large interest rates they have to pay back. Therefore Suzy decides to go public.

She is selling shares of her company for $1 per stock. With the funding she gets she’s able to open more jelly bean stands and is able to hire more employees. Not only does investing in the stock market help make you money, but it also creates more jobs.

How do you profit from the stock market?

Profiting from the stock market is simple. You make money from your stocks from either dividends or from their value growing. Dividend stocks are very popular and somewhat easy to profit from. Dividends are payments of cash or more stocks made to the investors from the company. Dividends are only rewarded from public companies. Dividend stocks are a good way of making passive income.

One other popular way of making money from stocks is simply from the value or reputation of the company. Let’s say that Michael Jordan and Suzy strike a deal with each other to help sell more jelly beans. They come out with a new limited edition Michael Jordan jelly bean flavor and everyone loves it. This would cause the company’s reputation and capital to grow. Therefore your stock’s value could grow tremendously.

Unfortunately your stocks value can also tank. This could be due to a company going bankrupt or bad things the company says or does.

Understanding all of this information can help you grow your capital and your wealth. Investing in the stock market is a smart way to grow your portfolio. Don’t work for your money, make your money work for you.