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.
Think about it this way. Say Joe is an entrepreneur and creates a flower shop. This flower shop cost $200,000 to set up and once it is built he starts making some good money. Joe's shop is so successful that he wants to open up another store and 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 here is that the store will grow so that this really becomes a win-win situation. Investors benefit as the store grows and as demand for the "stock" in the store grows with it. Business owners benefit because they have more money to invest into their company. This idea of selling shares in the company to raise capital dates back to the 1600s and will likely keep going on until the future for one simple reason. It works.
And as an investor you can buy shares in different companies and do research on the different companies so that you can set all the odds in your favor.
Think about it this way. Say Joe is an entrepreneur and creates a flower shop. This flower shop cost $200,000 to set up and once it is built he starts making some good money. Joe's shop is so successful that he wants to open up another store and 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 here is that the store will grow so that this really becomes a win-win situation. Investors benefit as the store grows and as demand for the "stock" in the store grows with it. Business owners benefit because they have more money to invest into their company. This idea of selling shares in the company to raise capital dates back to the 1600s and will likely keep going on until the future for one simple reason. It works.
And as an investor you can buy shares in different companies and do research on the different companies so that you can set all the odds in your favor.
About the Author:
For more on the history of the stock market visit this history of the stock market page.
No comments:
Post a Comment