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What are Stocks?

Stocks are basically a small piece of ownership in a public company. Any public company has a specific number of these "shares" outstanding. A public company must report its financial information according to nationally accepted accounting practices. This allows the investor to have confidence in the information. A company goes "Public" to raise money to run its business without having to pay back the money. When a company does this it is called an "initial public offering;" this is the only time the company receives cash from the public. After this the stock is traded on the secondary market, between you and me. If you buy AT&T another person, in turn, is selling it. To facilitate this there are "Market Makers" that are always there to buy your stock or to sell you some of their own inventory.

Q.

Some of my clients have asked me, "Jamie if we buy stock how does it make money for us?"

A.

If you paid $16 per share and its value six months later were $25 per share then you could turn around and sell it, making a profit, minus the commission and taxes, of course.

The other way stocks make money is when a company declares a dividend. Companies do this when they feel they can not make better use of the money themselves, on growing the company. Dividends are usually paid only if the company has a profit and they want to pay it out.

Typically I invest in companies that do not pay dividends, because they are plowing all their extra money into research and development or advertising, to grow the business.

Growth is what we want, lot's of it!