Explaining stocks and the stock market
Explaining stocks and the stock market Stocks are more than just a piece of paper (and sometimes not even that) At some point, just about every company needs to raise money, whether to open up a West Coast sales office, build a factory, or hire a crop of engineers. In each case, they have two choices: 1) Borrow the money, or 2) raise it from investors by selling them a stake (issuing shares of stock) in the company. When you own a share of stock, you are a part owner in the company with a claim (however small it may be) on every asset and every penny in earnings. Individual stock buyers rarely think like owners, and it's not as if they actually have a say in how things are done. Nevertheless, it's that ownership structure that gives a stock its value. If stockowners didn't have a claim on earnings, then stock certificates would be worth no more than the paper they're printed on. As a company's earnings improve, investors are willing to pay more for t...