Things to know part 4!
For a new investor, the stock market can feel like gambling, Randomly choose a stock based on instinct and chatter! If the price of your stock goes up you win! If it drops, you lose!
Not exactly. But sadly that's how many new investors think of the stock market; investments that will either brings huge monetary gains or devastating losses. With that attitude, the stock market is as good a form of investment as a game of blackjack! But the more you learn about stocks, and the more you understand the true nature of stock market investment the better and smarter you'll get. The stock market can be scary but a little information can help ease you. Let's start with some basic definitions. A share of stock is literally a share in the ownership of a company. When you buy a share of stock, you're entitled to a fraction of the earnings of that company. Assets include everything the company owns (equipment, trademarks), and earnings are all of the money the company brings in from selling its products and services.
Why would a company want to share its assets and earnings with the public? Because it needs the money! Companies only have two ways to raise money to cover start-up costs or expand the business… It can either borrow it. or sell stock also known as equity financing
The disadvantage of borrowing money is that the company has to pay back the loan with interest. By selling stock the company gets money with no strings attached. There is no interest to pay and no requirement to even pay the money back at all. financing distributes the risk of doing business among a large pool of investors If the company fails, the founders don't lose all of their money.
This will be the end of things to know for now!