The stock market has been around for a long time, but why do we even have it to begin with? We have the stock market simply because it makes sense and it helps businesses to grow and prosper.
Let us take an example here, say Joe opened up a flower shop which cost him $200,000. The shop starts to make some good money so he decides that he wants to open up another shop so that he can expand.
But there is a problem. Joe does not have enough money to open up another store. What can he do about it? Well one thing he can do is to sell shares of his business in order to get things off the ground. For example, if Joe's business is making $100,000 a year and a 10% return sounds like a good investment he can consider his store to be worth $1,000,000.
If he sells little chunks to investors he can raise the money from these investors. If he sells 20% of his company he will obtain the $200,000 that he needs for his company. If he sells 40% of the company he could set up 2 shops. As long as he keeps at least 50% of the company he will still control it.
The idea behind selling stocks is pretty simple. Business owners can raise the capital that it takes to open up a new store thus seeing their business grow and investors can buy something that is likely to keep growing into the future as the company continues to grow. It is a real win-win situation that helps out both parties. This win-win situation first appeared way back in the 1600s and is likely to continue far into the future.
Also as an investor you can check out the fundamentals of the company and can invest into many different companies so that you get to benefit from getting into strong companies and from diversification.
Let us take an example here, say Joe opened up a flower shop which cost him $200,000. The shop starts to make some good money so he decides that he wants to open up another shop so that he can expand.
But there is a problem. Joe does not have enough money to open up another store. What can he do about it? Well one thing he can do is to sell shares of his business in order to get things off the ground. For example, if Joe's business is making $100,000 a year and a 10% return sounds like a good investment he can consider his store to be worth $1,000,000.
If he sells little chunks to investors he can raise the money from these investors. If he sells 20% of his company he will obtain the $200,000 that he needs for his company. If he sells 40% of the company he could set up 2 shops. As long as he keeps at least 50% of the company he will still control it.
The idea behind selling stocks is pretty simple. Business owners can raise the capital that it takes to open up a new store thus seeing their business grow and investors can buy something that is likely to keep growing into the future as the company continues to grow. It is a real win-win situation that helps out both parties. This win-win situation first appeared way back in the 1600s and is likely to continue far into the future.
Also as an investor you can check out the fundamentals of the company and can invest into many different companies so that you get to benefit from getting into strong companies and from diversification.
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For more on the history of the stocks visit this history facts of the stock market page.. Unique version for reprint here: Why Does The Stock Market Exist?.
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