Introduction to Stock Market
Many new investors think of the stock market -- as a short-term investment vehicle that either brings huge monetary gains or devastating losses. With that attitude, the stock market is as reliable a form of investment as a game of roulette. 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 manage your money. The stock market can be intimidating, but a little information can help ease your fears. Let's start with some basic definitions.
• Share: 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 small fraction of the assets and earnings of that company.
• Assets: They include everything the company owns (buildings, equipment, trademarks), and earnings are all of the money the company brings in from selling its products and services.
Companies offer shares in order to raise money. There are two ways for that:
• It can either borrow money (a process known as debt financing)
• Sell stock (also known as equity financing).
Stock market is a better option -
• The disadvantage of borrowing (debt financing) money is that the company has to pay back the loan with an interest.
• By selling stock, however, the company gets money easily. There is no interest to pay. Even better, equity financing distributes the risk of doing business among a large pool of investors (stockholders). If the company fails, the founders don't lose all of their money; they lose several thousand smaller chunks of other people's money.
