Why is There a Stock Market?
Why do we have the stock market? We all know that it is considered to be a great place to invest money, but why was it made and why would a business sell it’s shares? The reason for the stock market is that it makes sense.
Think about it this way. Say Joe is an entrepreneur and creates a flower shop. This flower shop cost $200,000 to set up and once it is built he starts making some good money. Joe’s shop is so successful that he wants to open up another store and expand.
However there is another problem that Joe will come across here. He simply doesn’t have the money to open up a second shop. What he can do to raise the money is to sell shares of his company to investors. Let us assume that his company is valued at $1,000,000.
If he breaks these up into little pieces and sell then to individual investors he can get the $200,000 it cost to open up a new store simply by selling 20% of the ownership of the company. And as long as Joe keeps over 50% of the ownership of the store he still controls the company.
The idea behind selling stocks is pretty simple. Business owners can raise the capital that it takes to open up a new store thus seeing their business grow and investors can buy something that is likely to keep growing into the future as the company continues to grow. It is a real win-win situation that helps out both parties. This win-win situation first appeared way back in the 1600s and is likely to continue far into the future.
And as an investor if you are able to pick the right stocks you can make a large return by investing into companies with great fundamentals and that are likely to grow in the near future.
For more on the stock market history visit this history facts of the stock market page.. Free reprint available from: Why is There a Stock Market?.
Popularity: unranked [?]
