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Understanding the Stock Market
The word stock simply refers to a supply. You may have a stock of T-shirts in your closet, or a stock of
pencils in your desk. In the financial market, stock refers to a supply of money that a company has
raised. This supply comes from people who have given the company money in the hope that the
company will make their money grow.
A market is a public place where things are bought and sold. The term "stock market" refers to the
business of buying and selling stock. The stock market is not a specific place, though some people
use the term "Wall Street"—the main street in New York City's financial district—to refer to the U.S.
stock market in general.
Why Companies Issue Stock...
bull market
If a company wants to grow—maybe build more factories, hire more people, or develop new
products—it needs money. It could get a loan from a bank. But then it would owe money. By issuing
stock, a company can raise money without going into debt. People who buy the stock are giving the
company the money it needs to grow.
Not every company can issue stock. A business owned by one person (a proprietorship) or a few
people (a partnership) cannot issue stock. Only a business corporation can issue stock. A
corporation has a special legal status. Like a school, its existence does not depend on the people
who run it. Under the law it is separate from the people associated with it, and has special legal
rights and responsibilities as well as its own unique name.
...And Why People Buy It
Owning stock in a company means owning part of that company. Each part is known as a share. If a
company has issued 100 shares of stock, and you bought one, you own 1% of that company. People
who own stock are called stockholders, or shareholders.
Stockholders hope the company will earn money as it grows. If a company earns money, the
stockholders share the profits. Over time, people usually earn more from owning stock than from
leaving money in the bank, buying bonds, or making other investments.
One Man, 5,000 Votes?
Stockholders in a company usually have voting rights. They vote on such issues as who will be
elected to the board of directors—the group of people who oversee company decisions—and
whether to buy other companies. Stockholders typically have one vote for each share they own. Every
vote counts, but a
pencils in your desk. In the financial market, stock refers to a supply of money that a company has
raised. This supply comes from people who have given the company money in the hope that the
company will make their money grow.
A market is a public place where things are bought and sold. The term "stock market" refers to the
business of buying and selling stock. The stock market is not a specific place, though some people
use the term "Wall Street"—the main street in New York City's financial district—to refer to the U.S.
stock market in general.
Why Companies Issue Stock...
bull market
If a company wants to grow—maybe build more factories, hire more people, or develop new
products—it needs money. It could get a loan from a bank. But then it would owe money. By issuing
stock, a company can raise money without going into debt. People who buy the stock are giving the
company the money it needs to grow.
Not every company can issue stock. A business owned by one person (a proprietorship) or a few
people (a partnership) cannot issue stock. Only a business corporation can issue stock. A
corporation has a special legal status. Like a school, its existence does not depend on the people
who run it. Under the law it is separate from the people associated with it, and has special legal
rights and responsibilities as well as its own unique name.
...And Why People Buy It
Owning stock in a company means owning part of that company. Each part is known as a share. If a
company has issued 100 shares of stock, and you bought one, you own 1% of that company. People
who own stock are called stockholders, or shareholders.
Stockholders hope the company will earn money as it grows. If a company earns money, the
stockholders share the profits. Over time, people usually earn more from owning stock than from
leaving money in the bank, buying bonds, or making other investments.
One Man, 5,000 Votes?
Stockholders in a company usually have voting rights. They vote on such issues as who will be
elected to the board of directors—the group of people who oversee company decisions—and
whether to buy other companies. Stockholders typically have one vote for each share they own. Every
vote counts, but a
