The stock market is very well known yet surprisingly not very well understood. Hopefully I’ll shed some light on the subject, and you can fill in what I miss.

One way for a company to raise money for growth and expansion is to sell shares of stock. When you hear about a company “going public”, a previously privately held company is now offering shares of stock to the general public. You and I can now buy an ownership interest in the company. This sale of stock to the public is called an “IPO”, or initial public offering.

Important to note: This is the only time that the company directly benefits from the sale of its stock (unless they issue more shares later). What we know as the stock market is actually a secondary market, where these shares of stock are traded (bought and sold) amongst investors. When a stock’s share price goes up, there is no affect on the actual financials of the company. They’ve already raised their money on the initial sale (IPO).

There are also multiple stock markets or exchanges. The New York Stock Exchange (NYSE) is probably the most well know, but there is also the NASDAQ or the American Stock Exchange (AMEX). These are simply markets where stock certificates are bought and sold. Don’t complicate this; it isn’t rocket science. How much a stock is then worth depends on how much someone is willing to pay and how much someone is willing to sell for. Supply and Demand.

Without getting into more detail yet, remember that when you’re purchasing stock, you’re buying an ownership interest in the company. You don’t really own stocks; you own pieces of companies. This is important to remember because the next step is figuring out which companies are worth owning (buying) and which companies are no longer worth owning (selling). I’ll talk more about this later, but for now, feel free to chime in on this.

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