One of the most popular forms of investment today is the stock market. The stock market provides great revenue potential through the buying, and selling, of stocks - shares in a company. A company's shares are best described as units of ownership in an enterprise. When a growing company wants to raise money it may issue common stock. This means that it offers part ownership of itself, in the form of stock units, to interested investors. This can raise money quickly to finance the new corporation's growth.
Now that we know how the stocks came to be there we can better understand the stock market. As mentioned before, stocks represent ownership of part of a company. This entitles one to certain benefits. Of course, these stocks are an asset in themselves and can be sold to raise funds. Additionally, most, if not all, corporations pay out dividends to their stockholders. This is done on a per unit basis. This means that the more stock an investor owns, the greater his share of the dividends paid out.
Apart from the financial benefit of dividends, investors in a company's stock anticipate that its value will go up over time. This would increase the value of an investor's portfolio and represent appreciation of an asset that can be sold, if necessary, to cover the stockholder's expenses.
While the stock market offers great potential for high return on investment, these returns are tethered to the company's success. If the company's profit is insufficient, or non-existent, they may pay little, or no, dividends and their share value is likely to fall. Even worse, if some external factors come into play, the consequences for shareholders can be disastrous. An example would be a cigarette company. If a law were passed, outlawing the cigarettes in a jurisdiction, or imposing a heavy tax on them, the company could collapse, leaving its shareholders with great financial loss.
Such possibilities are inevitable in the stock market and the risk may be worth taking. Significant profits can be achieved when companies perform well and their stock prices soar, not to mention the high dividends that are paid out. There have even been a number of cases of investors becoming millionaires, over very short periods of time, due to a company's sudden phenomenal success and the corresponding skyrocket of share prices. Even better, a stock's value may climb so high that the company declares a stock split, doubling the number of stock held by every shareholder, in an effort to keep the price attractive to potential investors. This usually signals great success for a company and can have rapid, dramatic, positive consequences on the wealth of its stockholders.
As demonstrated above, great possibilities are available to stock market investors - both good and bad. Wise decisions can generate wealth very quickly making this type of investment very lucrative.
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