Tank Farming

Standing far back and looking out on to the stock market one will see a very complicated world with a lot of seemingly scary numbers that constantly run back and forwards. Looking closer, though, the stock market becomes a lot more clear and it is seen that it really isn’t that difficult to understand after all.

The stock market is just that. A market where one can purchase or sell stocks. To understand the stock market, therefore, is not much different than understanding a fish market. The more people want them, the more they cost. They less people want them, the less t hey cost. But should you want this one or that one? Well, using the fish market analogy, you can not really understand what to buy at that market unless you understand something about fish.

So before you can zero in on just what stocks to buy at the stock market you must understand at least something about what the stock actually is. A stock, in another word, is a share. It is a share of a company that wants to allow anyone in the public sphere the opportunity to invest in a piece of their business.

A company offering shares for public trade would no doubt offer thousands of shares, but to better understand it assume that it only offers a hundred. If you buy one share for yourself then you own, in essence, one percent of that company. As a one percent owner you have one percent weight over some of the more important decisions the company makes. This is done by voting and attending stockholder meetings. The more shares you own the greater say you have.

The reason people buy shares in companies is so they can make money. As a part owner the investor makes money when the company makes money. The money the investor earns comes to form in several ways.

Firstly let’s look back at the company that the share is in. That company will earn a certain amount of money in a given period of time. That money has to be used to pay for its operating costs, paying salaries and the like. Whatever money is left over from that is in one form or another distributed to its owners; or, share holders.

Most companies pay out dividends at various points throughout the year. These are chunks of the profit being distributed to the people who own the shares. If you own that one percent then you get one percent of the dividends. What does not get paid out in dividends goes back in to the company so that it can grow.

When a company is doing very well then a lot more people will want to buy themselves a piece of it. To do this they will need to get themselves a share. If there are only those hundred shares though, then there are not a lot to go around. That kicks off the effects of supply and demand and, as such, the price of each share will rise.

If you choose that time to sell your share in the company, you will make a profit because of that rise.

Mika Hamilton is the editor of the Global Investment Institute Read More Free Investment & Wealth Creation Tutorials & Reviews at http://www.Global-Investment-Institute.com