What is a stock? Part 2
Continuing the series. Enjoy!
Other Groups
If you are in a group of people that wants to make money, you don't have to invent a corporation. There are four or five other ways to start a business. There's the partnership, and the sole-proprietership, and others. But these don't work as imaginary people as well as corporations do, so when people are ready to make the big bucks, they usually make their business a corporation.
Where does the money go?
Let's say Fred sells toothpaste with caffeine in it, so you can have clean teeth and skip your morning coffee. When the group of people invented Fred, each of them gave Fred some money to buy what he needed to make toothpaste. Giving money to something so you can get more money later is called investing. The money that you invest is called capital. I think capital is a funny word for money, but that's what it's called.
Now lots of people are buying Fred's toothpaste. At the end of the year, Fred's bank account has a huge amount of money sitting there like a fresh baked pie. Will Fred use that money to buy himself a shiny new sports car? No! He's imaginary. Imaginary people don't want sports cars. So what happens to the money? The group of people that made up Fred decide what to do with it. They own Fred after all. So they have a meeting and decide to spend all the money Fred made this year on a new toothpaste factory so they can sell more toothpaste next year and end up with an even bigger "pie". Taking money you just made and using it to make more money is called re-investing. Maybe next year, instead of just reinvesting, the people will each get some of the money. Maybe they'll each have a slice of pie.
Other Groups
If you are in a group of people that wants to make money, you don't have to invent a corporation. There are four or five other ways to start a business. There's the partnership, and the sole-proprietership, and others. But these don't work as imaginary people as well as corporations do, so when people are ready to make the big bucks, they usually make their business a corporation.
Where does the money go?
Let's say Fred sells toothpaste with caffeine in it, so you can have clean teeth and skip your morning coffee. When the group of people invented Fred, each of them gave Fred some money to buy what he needed to make toothpaste. Giving money to something so you can get more money later is called investing. The money that you invest is called capital. I think capital is a funny word for money, but that's what it's called.
Now lots of people are buying Fred's toothpaste. At the end of the year, Fred's bank account has a huge amount of money sitting there like a fresh baked pie. Will Fred use that money to buy himself a shiny new sports car? No! He's imaginary. Imaginary people don't want sports cars. So what happens to the money? The group of people that made up Fred decide what to do with it. They own Fred after all. So they have a meeting and decide to spend all the money Fred made this year on a new toothpaste factory so they can sell more toothpaste next year and end up with an even bigger "pie". Taking money you just made and using it to make more money is called re-investing. Maybe next year, instead of just reinvesting, the people will each get some of the money. Maybe they'll each have a slice of pie.