Your Questions About Great Money Making Stocks

Mandy asks…

A business that is public gets money how after shares are released?

I know that when a company releases shares, it’s dealing securities to investors. It’s a great way to raise capital. But after they’re released, how do the value in stocks change? I mean, I know the answer must be pretty simple. But do the share prices go up if the company is performing better? Why? How are the two connected? Unless the whole point is to resell the securities back to the company, why do people buy the stocks? Especially if there is no yield?

And also, when businesses sell stocks directly, they make money. But is that it? Do they make no money off of transactions of shares afterward? It seems like the capital gain from the securities is only initial and then it’s just trading between investors. As in: no benefit for the company at that point.
Okay, so everything was answered but this: what makes the prices of a stock go up if the company is performing better? Why wouldn’t the prices of the shares, which are essentially just securities, remain at the same level?

John answers:

You are right:

“it seems like the capital gain from the securities is only initial then its just trading between investors, as in: no benefit for the company at that point”

Once a company issues stock for the first time, the money is used to finance the company’s business operations. The investors in the stock become the owners of the company.

Why would any entrepreneur do this?

Imagine that you are an extremely talented engineer and you know that you could design a car that is safer, cheaper, more powerful, and waay more efficient than every car that is out there. All you need to profit off of your idea is an automobile factory.

Your idea is fantastic, but it turns out that an automobile factory would cost you $100 million. Unfortunately you don’t have $100 million. Even if you worked hard and saved your entire life, you could never have $100 million to build your factory.

Unless you go public. If you can convince an investment bank (like Goldman Sachs, JP Morgan, or many others) that your idea is good and you can run a successful automobile factory, then one of these investment banks will help you raise money for your venture by selling stock.

The downside is that you will give up ownership of your factory to the investors. The good news though is that you will get to be CEO, and if you are successful you will likely get paid a lot of money. You will probably also get stock compensation and can eventually become a large shareholder in the company.

So you do it. You hire an investment bank and the investment bank finds a bunch of investors who are willing to buy stock in your company. You are able to raise $100 million.

After a while some of your investors may choose to sell their stock to someone else, that new investor then becomes a part owner of the company instead.

If you run the company well and earn lots of profits, the stock will most likely rise in price and you will get lots of CEO bonuses and a pay raise. If you do poorly and run the company into the ground, the company’s stock price will drop and your investors will fire you as CEO.

Investors are willing to buy the stock because they own your company. Any profits you earn belong to them. You will negotiate with the board of directors (elected by the share holders) for your salary, bonuses, and must consult with them about your strategic plans for the company. The board of directors might decide to pay most of the profits you earn as dividends to shareholders, but if they have a lot of confidence in you they may let you reinvest the profits to expand the business (maybe they would like you to build a second factory). The hope is that by having you reinvest profits, the company will earn more money in the future and thus the stock will be worth more and dividends could be higher.

Every day thousands of public companies trade hands between investors millions of times. Some are in it for the long haul, hoping that the companies they own will grow and pay dividends, resulting in solid returns over time. Others are just trying to make a quick buck by gambling on what direction stocks prices are going to move in the next 5 minutes and trying to profit off of other traders.

Either way, this buying and selling doesn’t affect the cash balance of the business itself, but executives are very concerned with how their company’s stock is doing, because they get paid and keep their jobs when their investors are happy. Investors are happy when executives are doing their jobs well and making them money.

Charles asks…

First job & saving money?

Hello, all. I have just graduated from college with a degree in Network Administration. I’m 22 years old. I have got a job starting out as a laptop repair tech making $15 an hour. For me, this is great money. I worked at UPS for three years making $9 an hour 17-20 hours a week. I have zero bills. Only thing I have is gas, & board because I live with my parents. I have a car that I paid cash with & my insurance is already paid for next year(Grass cutting money)

So, as you can tell, I have little overhead. I do plan on getting a cell phone. But, I plan to keep that bill below $100. I have 15K in student loans that I do plan to pay a little bit more than the minimum.

Now, I want some structure with managing money. After six months at the job I plan on starting 401k, and stocks. How much should I save from the paycheck? I need percentages. Also, should I put back money for certain things? Or just one savings account?

John answers:

For anything you were buying before this new job, keep spending what you were when you made less. You now have student loan payments and want a cell phone, so add those to what you were spending before and put the rest in savings then toward additional student loan payments. It will probably cost you some money to get a cell phone, but keep the monthly bill less than $100 – I’d say $50 is more appropriate.

I definitely suggest building a budget for your money and tracking your spending. DaveRamsey.com has free templates and lots of great advice. Mint.com is a free budgeting software that tracks spending in your online accounts and includes graphs of spending and many other options.

Create your budget and make payments to all your bills on time. Put money in savings as an emergency fund and to save up for future goals. One savings account is fine, but some people have different accounts for different savings. For example, one account is an emergency fund and one account is for saving for a major purchase like a car or moving out of the parents’ house. You’ve got the right idea by paying more than the minimum to your loan, unless you need that cash for a major purchase.

If your company offers direct deposits, see if you can split it between 2 accounts, something like 10% goest to savings and the rest to your checking account. This is a great way to build up your savings and see how much you have to spend on other items.

Check out your companies 401K plan and matching policy. You’ve got 6 months to educate yourself and make this decision, so plenty of time. As long as you can afford it, I suggest putting the maximum amount the company matches into your 401K. For example, if they match 50% of what you contribute up to 6%, contribute 6% because that’s an immediate 50% return on your money.

Donna asks…

How can I change my awful Financial Luck?

I lost my job 2 years ago, decided to start my own business but economy is killing it, tried to make money in the stock market and got blown up by bear market, medical bills are soaring due to wife and I having health issues. I cannot stop the freefall. I have had no luck finding a decent job that pays well despite great experience…….UGH! Is it just awful for most people right now?

John answers:

Quit thinking it’s luck, and start making smart decisions. Take control of your life instead of making excuses.

Are you “between jobs”? Get a job, any job, to keep some positive cash flow until you can find a “good job”.

If you have a job, get a better job.

Work out a payment plan with the hospital/doctor. Consider alternatives to the expensive care you’ve been getting.

William asks…

Was the US Gov set up to help businesses make money, or to protect the quality of life for all it’s people?

Our country’s territory and the people in it are being taken over by Large corporate interests, that see all natural resources as well as the actual citizens of the country as nothing more than a means to an ends of acquiring material gain for the individual stock holders and corporate officers. This is being done at great expense to the common good. Is there really any question that those in our government who facilitate this atrocity are traitors?

John answers:

None of the above.

Linda asks…

Social studies help about the 1920 and the great depression?

i have a study guide with questions and i dont know what to write…plzzz answer if u know the answers to these questions…
– What types of products showed improved communication during the 1920?
– What was it called when u bought and payed later?(i think the answer starts with an m)
– What is it called when people borrow money to buy stocks with the hope of making money?
– What is a person that sells illegal alcohol called?
– What is a bar that sold alcohol during prohibition called?
– Who was the gangster who made his fortune by selling bootlegged alcohol in Chicago and became the most famous organized crime boss in history?
– Who was the jazz pianist and composer who often played at Cotton Club in Harlem?
-The 1920s was a time of ________________ WWI had ended and america was a major world power.
– ________ ________ kept american business owners happy because they kept foreign-made products out of the United States.
– What were the 3 “r”s that Roosevelt wanted to see happen during his 1st 100 days in office?

John answers:

1. Advertising was the first means of communication during the great depresseion.
2. ???
3. Margin
4. Bootlegger
5. Speakeasies
6. Al Capone
7. Duke Elleington
8. Celebration
9. ???
10. Relief, Recovery and Reform.

Hope that helped, good luck!
~Sandy

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