Stocks

Why do companies sell stock?

To put it in simply- "To raise a lot of Cash"   

Selling privately held stock to the public is done through an Initial Public Offering or an IPO (also called 'going public') and allows the owners of a private company access to substantially more capital than they can get through private shareholders or venture capitalists.

With access to so much new capital, the private owners of the company get a big payout, as well as the company, gets access to an entire world of expansion and investment opportunities not available to it before.  

Where can you buy stock?

Companies can be privately owned by stockholders (like your local mom and pops retail stores) or openly traded in stock markets (like McDonald's and Microsoft) where the stock of the company can be bought by members of the public. Publicly traded stocks are bought and sold in Stock Exchanges through Brokerages though there can be private sales as well.  

How do you make money in Stocks?

In general, there are two ways in which investors make their money back in Stocks. They are ​Capital Appreciation or Dividends. 

CAPITAL APPRECIATION

If your bet on the correct stocks and they do well, the value of your shares will increase.  

​You can then sell these shares at a higher price to someone else in the market locking in your profits.  

So, for example, you could buy a share at $200 and it could go to $300 in one year. 

When you sell your share at $300, you've just made a profit of $100 on the share. 

A whopping 50% return on your initial investment.

DIVIDENDS

Another way to make money with the shares through earning Dividends. 

The concept of dividends works something like this.  

If the company you have invested in does very well and makes a big profit- it may decide to either keep the money and reinvest it in other profitable projects OR it may decide to give some of these profits back to its shareholders. Any money given back to the shareholders from company profits is called a Dividend.    

As a rule of thumb, dividends are more likely to be paid by well-established companies that no longer need to reinvest as much money back into their business. High-growth, tech or biotech companies rarely pay dividends, because they need to reinvest profits into expanding that growth.

For example, If a company makes one million dollars in profit for the year, it may decide to give 25% or 250,000 as dividend payment to all its shareholders. 

Now, the more of the company, you own, the bigger your cash out. 

What are the different types of Stock?

Owning a stock not only gives you a chance to make money but also comes with a few other benefits. 

Since you are now part-owner of a corporation, no matter how small your percentage of ownership might be, you now have what is called Voting Rights. 

Voting rights allow you to vote and also attend company shareholder meetings thereby allowing you to exert at least some influence on the companies decision-making process. 

Most companies have a fairly straightforward voting system. 

One Share = One Vote. 

But with most publicly traded companies having millions and millions of shares outstanding at any given point in time, you may not be able to change much with your vote.  

Theoretically though, with enough money, you could buy enough of the shares to become the biggest shareholder and if you manage to pull that off, the bigger your impact on company decisions is gonna be.  

But, let me put things in context for you here. 

In reality, companies trading in a public stock market have millions of shares. 

Take Apple, for example. 

Apple has 4,829,926,000 (4 Billion, eight hundred and twenty-nine million, nine hundred and twenty-six thousand) shares outstanding. So, if you own 10 shares, you'll own just 0.0000002% of the company. 

Nike, for example, has 1.6 Billion shares outstanding and owning one Nike share will give you just 0.00000006% of the company.

While you could theoretically take control of a company, practically, the same is not possible for most of us in our lifetimes.