The stock market can be scary for new investors. However, it’s not quite as complex as the folks on Wall Street want to pretend it is. This brings us to the most basic question about the stock market: What is a stock? It is a share of a public company.
A Public Company
There are private companies and public companies. Individuals or other companies own private companies. The public owns public companies. This is a way for multiple people to contribute to a company financially.
Let’s say a company is just starting out and needs $100,000 to kickstart. They could raise the money on their own or go public. Let’s say they go public. To start, they start their stock price off at $100/share and offer 1,000 shares (100 x 1,000 = 100,000). Now, if all of these 1,000 shares sell, the company will have full funding with their $100,000.
Once this company begins to earn profits, the profits could then be divided among the shareholders. If they managed to make $100,000 profit in the first year, they could add $100 to the price of each share. Now, all of the people who owned shares worth $100/each would own shares worth $200/each. That’s a nice profit! The company would also have the option of using that profit to re-invest in the company, pay dividends to shareholders or repurchase their own stock.
Repurchasing stock is where a company reduces the amount of shares by buying their own stock to destroy it, which decreases the total number of shares and that increases the value of the rest of the shares.
Purchasing Stocks
People used to have to go through an actual broker to buy any stock. They would call to place an order and it was a rather long process. Now it is easy to buy stocks online, by yourself. There many great companies like Vanguard and Robinhood. Buying one is as simple as figuring out their ticker symbols (i.e. Walmart’s symbol is WMT). Then, placing an order for the amount of shares you want.
Generally you will have a money market account in your brokerage account to store the money that you use for purchasing stock. Generally, you buy stock with money from your brokerage account, not with your regular checking account or a credit card. It often takes 5-7 business days to have the money available to buy investments once you transfer it to your brokerage account.
Get Started
Get out there and do your research. Educate yourself on the stock market and how to pick stocks. The stock market is a great place to invest. Stay smart about it and you know what you are doing. There are so many great books on investing in the stock market. I can’t name them all, but here are some great resources on investing in individual stocks:
A great workbook (probably the best) to start with:
Great Books on the stock market:
