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Learn What Stocks are in 2 Minutes

Welcome to professorsavings.com, we teach finance basics. Today we will teach you what stocks are.

Hi I’m Rayfil Wong.  We hope these investment concepts will help you be a better investor.

A stock is a share of the ownership of a company. As the owner of a stock, the stockholder, you have a claim on a company’s assets and earnings.

Supposed Professor Savings is starting a company, Pies R Us, he needs $100,000 but doesn’t want to borrow from a bank.

Instead, Professor Savings invests $10,000 of his own money and finds nine other investors who are willing to invest for $10,000 each. In return, he gives each investor a certificate that represents 10% of his company.

Each certificate represents 10% of the company’s assets: the building, the pie pans and the baking materials and 10% of any future earnings.

After one year, the company is doing well and the company’s total value increases to $200,000. This means each share of the company is now worth $20,000 – two hundred thousand dollars divided by 10 shares. That’s twice the original $10,000.

The original investors can sell their stock in the company to other investors for a 100% profit. This is how stocks work. Stocks are bought and sold daily on the major exchanges.

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About Professor Savings

HI. I'm Professor Savings. I teach daily money saving videos. Thanks for checking us out.

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