The simple definition of stock = a piece of ownership of a company
- If you purchase stock in Google, you own a small fraction of Google.
- When you purchase stock, you’re buying a piece of the company.
- People buy stock in order to invest
- Companies sell stock in order to gain revenue (money to build/grow the company)
Example
- A person starts a candy cane company, invests a lot of money, and the company is worth $100,000
- In order for this company to grow larger, it needs more equipment and employees
- The company needs more money to get the equipment and employees
- Instead of going to a bank to borrow the money, stock comes into play
- The candy cane company sells stock (or pieces of the company)
- Other people invest in the company and in turn, own part of the company
- The investors are looking for a financial gain
- If the company doubles its revenue, the investors also double their money (i.e. if one person invested $30,000 that initial investment is now worth $60,000)
- The investors benefit as the company grows
