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.
Let's look at it this way. Joe is an entrepreneur and uses his life savings to create a flower shop. This costs him $200,000 and after about a year he decides that the shop is so successful that he wants to open up another shop and continue to grow his business.
However there is a little problem here and that is the cost. Joe already spent his life savings setting up the first shop. Now that he wants to open up a second one he needs to get that money somewhere. Well one thing he can do is to sell shares of his business. If his business makes $100,000 a year he might consider it to be worth about $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.
Also as an investor you can check out the fundamentals of the company and can invest into many different companies so that you get to benefit from getting into strong companies and from diversification.
Article Source: FxTradingStock.com
About the Author
For more on the stock market history visit this stock market history facts page.
by: Shaun Rosenberg
Total views: 55
Word Count: 338
Date: Thu, 10 Jun 2010
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