Whoever owns the shares of stock are the owners of the public company, no one else. When you buy a share of stock, you are then one of the owners of that company. It could be any of over 13,000 companies that are traded with stock on the open market such as McDonald’s, Coca-Cola, Amazon.com, Ford, Krogers, your local bakery or electric company.
As a company earns money, it becomes more valuable and this value is reflected in the price of its shares on the open market. You collect this increase in value when you sell your shares for more than you paid for them.
The company’s board of directors decides what to do with its net earnings.
?Some or all of the earnings may be re-invested in the company so it can grow, open new stores or make repairs. When this is done, the earnings money is used up but the company is more valuable by that same amount.
The per share price, having increased because of the earnings, retain that increase when the earnings are re-invested in the company.
?Some or all of the earnings may be given directly to the shareholders and this is called a dividend. They just mail you a check or send the money to your brokerage account. This makes the price of the stock decrease by the same amount as the dividend, so you have the same value in the total of stock and dividends.
Since you are an owner of the company, the members of the board of directors work for you. Each year there is an election and you can vote for the board positions, one vote for each share that you own. If you own at least 51% of the shares then your vote always wins in the election.
As a shareholder, you can inform the board of your ideas, concerns or recommendations and these carry the weight of your shares.
You are also protected when you own stock. For instance, if your company gets sued and loses more than it can pay, the law cannot come to you, one of the owners, and confiscate your house or other property. The shares may become worthless, but that is all you can lose.
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If you buy stock hoping that you can sell it for a quick profit because of the daily or monthly swings in price, then you are gambling rather than investing. You are trying to guess better than the public, including professionals, how the price will change.
Companies whose stock has dropped to pennies are usually not earning money, owe a large debt and are on the verge of bankruptcy. Most actually become worthless.
For these stocks, a small change in price is actually a large percentage move and this volatility is what gamblers look for.
To truly invest, choose a company that has steady earnings each year instead of losses. If your company has very little long term debt, it will likely not get into financial trouble.
Buy quality stocks and hold on to them. When you hold these over a period of time, the share prices will go up for a real reason - the companies are earning money every year and becoming more valuable. This is not gambling; you are owner of a money making business.
If you save a portion of your income each payday and as it accumulates invest in stocks, over the course of several years you can grow very wealthy indeed. It is like hiring someone to get a job and earn money for you, and then using that money to hire more workers. Your money grows exponentially.
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Don't start in penny stocks. These are not investing and are highly speculative.
A stock represents ownership in a company. When you buy stock you are buying a piece of the company.
A stock may pay a dividend. This is giving you (the owner) a portion of the profits the company makes. The yield of a stock represents how much the dividend is as a percentage of the price of stock.
A stock can increase in value or lose value as the company increases and loses value. If you still own the stock, this increase in value is called unrealized gain. You do not actually make money until you sell the stock.
You have to pay a commission when you buy a stock and when you sell a stock. The commission is per transaction, so if you buy only a few stock the cost of the commission is very high and can eat up a lot of your potential profits.
IF you do not understand stocks, most investment pros would suggest you buy an index fund. An index fund buys into a broad range of stocks, so if you buy stock in an index fund you a buying a lot of companies which spreads your risks. Two popular index ETF's are SPY (based on the s&P 500) and DIA (based on the dow jones average)
I would not invest $100, I would keep saving until I saved a few thousand dollars. The commissions and taxes would eat up any profit if you invest a number as small as $100. Scottrade is a cheap on line broker, they charge $7.00 going in and $7.00 going out. So you're already down 14% when you invest $100.
You are wise to begin studying about investing. If you start young, you can become wealthy through saving and wise investments.
Here's the basics. You're going to need around $5,000 to $10,000 to start trading without the commissions and fees causing you problems. and if you have it in a retirement account - then you won't need to keep track of the trades for tax purposes. Until you get that much money saved up, you have time to begin your education about stock trading.
I consider "reminiscences of a stock operator" to be a easy read, and present some basic concepts.
Essentially, the stock market is a "zero sum game", where money is put into the stock market by workers (who lose money over time), and taken out by investors and traders. If you do what the majority of the workforce does, which is buy mutual funds for 30 years - then you will likely lose money (over time). If you read and study everything you can, you will likely get better than the average worker, and make money over time. No promises.
The way the stock market works is to think of the analogy of a cattle farmer owning cattle. If you see that Ford is at 14.00 it means you can buy 1 share of ford for $14.00. (Each ford cow costs 14.00).
If ford drops to 8 then your cow is worth 8 bucks, if it rises to 30 your cow is worth 30)
The good thing is you don't lose or make money in reality until you sell your cows to someone else. When the stock price goes down, instead of seeing it as losing money, you should see it as a chance to buy more cows at a cheaper price and increase your Hurd.
Warren buffet doesn't gamble in penny stocks. Warren buffet buys company's with stellar management that have a competitive advantage in the market place like VISA or COKE.
Let me save you a lot of hardship and heartache...starting young you could become a millionaire and retire at a young age if you do these 2 things.
#1) live way below your means and invest as much money as possible.
#2) invest in low cost index Mutual funds
You need to diversify your portfolio, dog.
Okay, well I'm 18 and I have 100 dollars(don't laugh,I know I can't do anything with that). How exactly does stock works and some good tips.
From my current knowledge it's you put in monery and you either get more money in return or you lose money, it's like gambling on steroids right? I have a Warren Buffett book that I'm gonna start reading to get a better understanding, also should I start in "penny stocks" to build up my confidence and knowledge?
