Your Questions About Money Making Stocks To Buy

Joseph asks…

How do companies make money when you buy a stock?

Looks like a simple question but there are more details:

When you sell a share are you directly (through brokers) selling that share to another buy or do you sell it back to the company and the company then sells it to you?

If not then companies can only make money once, when the share is first bought by the first buyer.

Please explain?
Steve I believe you answered my question, and straight to the point.

One more question, when I sell a stock how is it that someone is always buying on the other end?

John answers:

You are correct…companies only make money when they first sell the stock (there are exceptions if the company does a buy back and then re-sells the same shares). After the initial public offering (IPO), all trades are between two independent parties (individuals, retirement plans, etc.) .

Mary asks…

How do stocks make money?

If I bought a stock at a price, then next year it is worth 3 times that price… what made people willing to buy my stock for 3 times as much? So what about the companies earnings, etc. What benefit is it to them? Why did I really make money?

John answers:

You can get money either from capital gain (price appreciation) or cashflow (dividend). Once you the stock, you are one of the company’s shareholder. And as a shareholder, you have right to the company’s earnings.

As the company grow their earnings per share, market will reflect their value from the stock price increase. And also because the price has a direct correlation with its earnings per share (price to earnings ratio, P/E, PER).

Benefit to people who buy the stock? Well, they’ve the right to the company’s future growth. And if the stock able to continue growing, they’ll also gain.

Step-by-Step Stock Investing for Beginners

Robert asks…

Should we have a law in place where the oil companies have to reinvest in renewable energy&not buy back stocks?

The oil companies take the money they make and buy back there own stocks so the value of the stocks go higher.. Shouldn’t they reinvest the money in renewable energy

John answers:

Oil companies would not willingly work toward research renewable energy, because once a low cost solutions are made available they would be out of work, even we enact a law require them do it, they would find ways to work around it, remember the low efficiency wind power turbines? That was a total waste of money.

It’ll be more efficient to tax oil companies heavily, drive the price of oil up. Once oil is very expansive (like now), investors will begin looking into developing renewable energy. Because the investors are putting their OWN money in, the projects will be better monitored, more efficient. Also, when oil price is high, consumers are more willing to switch, demand for renewable energy will be up, driving price up, supply will naturally move up.

Alas the world will be saved by capitalism

Jenny asks…

If I buy a stock of a company about to be bought out, do I make or lose money?

Like if I buy T-Mobile USA stocks, or Deutsche Telekom (current owner) stocks, and T-Mobile is about to be bought out by ATT, will I make or lose money? If I buy ATT stocks, or DT stocks?

John answers:

There is hardly any way to know for sure if a company is going to be bought out before an announcement is made. The stock usually jumps on an announcement but there is usually still a little upside left. It usually trades just below the buyout price. You can make a little if you hold it until the deal is completed. But if the deal falls through the stock usually drops a lot and you stand to lose big in that case.

Linda asks…

Do you buy stocks and hope to make money on them?

John answers:

No and anyone who on here tell you they are making money are liars.

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