buying Stock?

Question

I don't really know how the stock work? can anybody explain it to me? be simplify! best with examples . such as how and what make a company's stock drop or gain . thank you !!

Answer 1

get a stock broker i dunno

Answer 2

I want to start a business called BigBiz. I don't have any money, but you do. I'll sell you 400 shares of BigBiz for a dollar a piece. I also sell Bill 100 shares at a dollar a piece. I keep 500 shares for myself. I now have $500 to start my business.

What value is that stock? Lets say we are trying to decide whether or not to put up a blue sign or a red sign. You have 400 votes in the decision. Bill has 100 and I have 500.

What about profit? Lets say that the company makes a profit of $100. We pay out $.10 per share, so you make $40. If we keep turning a profit, you keep making money.

What about the value of the stock? Well, you bought it for $1, so that's what it's worth. Joe thinks the company has a good plan and a great product. He wants to invest. He buys 200 shares from you, but you sell them to him for $1.10. The stock is now worth ten cents more.
Marty wants to buy your remaining 200 shares, but he's only willing to pay you $.90 each. You're willing to take the loss and you sell him all of the shares. Now, the stock is only worth $.90.

In this company, there are 1000 outstanding shares.

In most companies, the outstanding shares are in the millions and billions. For example. There are 22.8 billion shares of Capital One Financial. By noon CST today, people had bought and sold 1.7 million of those shares. When you look up the price on a financial page, it simply tells you how much was paid for shares in the last transaction. In the example of COF, the opening price was $75.18 per share. In the most recent transaction, someone was only willing to pay $74.93.

This is VERY basic, but I hope it helps you understand the markets.

Answer 3

Stock is spread ownership. 1 million people invest $500 each and the company as 500 million $ to purchase land, buildings, raw materials, and hire employees. The 1 million people own the company.
Stocks make money by becominig more valuable - their assets gain in value, their product sells more, more people want the stock and are willing to pay more.
Stocks MAY share this increased profit through dividends paid to the investors or capital gains. This is optional.
Stocks are required to post quarterly statements on how much they have made or lost as well as project for the year. Analysts follow the numbers like hawks and make predictions as well. If a company does not meet its own or the analysts predictions, it usually loses some value among investors and the price drops.
Example: Hershey is a solid company selling chocolate. It sells a great deal of chocolate for Valentines Day and Mothers Day. More sales means more profits means more value. This year it introduced a number of new items. Some sold well, some did not. This created excess inventory which is money spent but not paid for as well as research and publicity costs.
Storekeepers only allow companies so much space on the shelvbes. When Hersheys did not sell as well, their better products didn't get on the shelves to make money. As a result, their 3rd quarter numbers were weak, analysist moved their rating for i nvestors from buy to hold.
The easiest way to own stocks is to purchase mutual funds. They have full time analysists studying the stocks. They also diversify over dozens of stocks so one loser does not wipe one out. Mutual funds are rated by Moodys. Yahoo finance does a good job of offfering a variety of tools for both stock and mutual fund evaluation.
A rule of thumb: Don't invest in stocks until you have 3 months income safely invested in CD's and similar items where you cannot lose your money.

Answer 4

This really is not the forum to address that question. You are essentially asking for a beginner's finance class that would take 14 weeks to be condensed into a quick answer. Here is your one sentence answer.

A company's stock price is simply the present value of future earnings as they are being estimated by the market.

Answer 5

The stock market can be a great source of confusion for many people. The average person generally falls into one of two categories. The first believe investing is a form of gambling; they are certain that if you invest, you will more than likely end up losing your money. Often these fears are driven by the personal experiences of family members and friends who suffered similar fates or lived through the Great Depression. These feelings are not ground in facts and are the result of personal experience. Someone who believes along this line of thinking simply does not understand what the stock market is or why it exists.

The second category consists of those who know they should invest for the long-run, but don’t know where to begin. Many feel like investing is some sort of black-magic that only a few people hold the key to. More often than not, they leave their financial decisions up to professionals, and cannot tell you why they own a particular stock or mutual fund. Their investment style is blind faith or limited to “this stock is going up. We should buy it.” This group is in far more danger than the first. They invest like the masses and then wonder why their results are mediocre [or in some cases, devastating].

The average investor can evaluate the balance sheet of a company, and following a few relatively simple calculations, arrive at what they believe is the “real”, or intrinsic value of the company. This will allow a person to look at a stock and know that it is worth, for instance, $40 per share. This gives each investor the freedom to know when a security is undervalued, increasing their long-term returns substantially.

Before we examine how to value a company, it is important to understand the nature of businesses and the stock market. This is the cornerstone of learning to invest well.

Business is the cornerstone of any economy. Almost every large corporation started out as a small, mom-and-pop operation and through growth, became financial giants. Wal-Mart, Dell Computer, and McDonald’s had combined profits of $10.34 billion this year. Wal-Mart was originally a single-store business in Arkansas. Dell computer began with Michael Dell selling computers out of his college dorm room. McDonald’s was once a small restaurant no one had heard of. How did these small companies grow from tiny, hometown enterprises to three of the largest businesses in the American economy? They raised capital by selling stock in themselves.

When a company is growing, the biggest hurdle is often raising enough money to expand. Owners generally have two options to overcome this. They can either borrow the money from a bank or venture capitalist, or sell part of the business to investors and use the money to fund growth. Taking out a loan is common, and very useful – to a point. Banks will not always lend money to companies, and over-eager managers may try to borrow too much initially, wrecking the balance sheet. Factors such as these often provoke owners of small businesses to issue stock. In exchange for giving up a tiny fraction of control, they are given cash to expand the business. In addition to money that doesn’t have to be paid back, “going public” [as its called when a company sells stock in itself for the first time], gives the business managers and owners a new tool: instead of paying cash for an acquisition, they can use their own stock.

To better understand how issuing stock works, let’s look at a fictional company “ABC Furniture, Inc.” After getting married, a young couple decided to start a business. It would allow them to work for themselves, as well as arrange their hours around their family. Both husband and wife have always had a strong interest in furniture, so they decide to open a store in their hometown. After borrowing money from the bank, they name their company “ABC Furniture” and go into business. The first few years, the company makes little profit because the earnings are plowed back into the store, buying additional inventory and adding onto the building to accommodate the increasing level of merchandise.

Ten years later, the business has grown rapidly. The couple has managed to pay off the company’s debt, and profits are over $500,000 per year. Convinced that ABC Furniture could do as well in several larger, neighboring cities, the couple decides they want to open two new branches. They research their options and find out it is going to cost over $4 million dollars to expand. Not wanting to borrow money and be strapped with interest payments again, they decide to sell stock in the company.

The company approaches an “underwriter”, such as Goldman Sachs or JP Morgan, who determines the value of the business. As mentioned before, ABC Furniture earns $500,000 after-tax profit each year. It also has a book value of $3 million [the value of the land, building, inventory, etc. subtracted by the company’s debt] The underwriter researches and discovers the average furniture stock is trading at 20 times earnings [a concept we will discuss more in-depth later].

What does this mean? Simply, you would multiply the earnings of $500,000 by 20. In ABC’s case, the answer is $10 million. Add book value, and you arrive at $13 million. This means, in the underwriter’s opinion, ABC Furniture, is worth thirteen million dollars.

Our young couple, now in their 30’s, must decide how much of the company they are willing to sell. Right now, they own 100% of the business. The more they sell, the more cash they’ll raise, but they will also be giving up a larger part of their ownership. As the company grows, that ownership will be worth more, so a wise entrepreneur would not sell more than he or she had to.

After discussing it, the couple decides to keep 60% of the company and sell the other 40% to the public as stock. [This means that they will keep $7.8 million worth of the business. Because they own a majority of the stock, they will still be in control of the store.] The other 40% they sold to the public is worth $5.2 million. The underwriters find investors who are willing to buy the stock, and give a check for $5.2 million to the couple.

Although they own less of the company, their stake will hopefully grow faster now that they have the means to expand rapidly. Using the money from their public offering, ABC Furniture successfully opens the two new stores and have $1.2 million in cash left over [remember it was going to cost $4 million for the new stores]. Business is even better in the new branches, which are in more populated cities. The two new stores both make around $800,000 a year in profit each, with the old store still making the same $500,000. Between the three stores, ABC now makes an annual profit of $2.1 million dollars.

This is great news because, although they don’t have the freedom to simply close shop anymore, the business is now valued at $51 million dollars [multiply the new earnings of $2.1 million per year by 20 and add the book value of $9 million; there are three stores now, instead of one]. The couple’s 60% stake is worth $30.6 million dollars.

With this example, it’s easy to see how small businesses seem to explode in value when they go public. The original owners of the company are, in a sense, wealthier overnight. Before, the amount they could take out of the business was limited to the profit. Now, they are free to sell their shares in the company at any time, raising cash quickly.

This process is the basis of Wall Street. The stock market is, at its core, a large auction where ownership in companies just like ABC Furniture is sold to the highest bidder each day. Because of human nature – the emotions of fear and greed – a company can sell for far more or less than its intrinsic value. The good investor’s job is to identify those companies that are selling below their true worth, and buy as much as they can.

Answer 6

http://www.investopedia.com


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