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by BALTHOR from MILWAUKEE

Last Post 21 hours Ago


When stock prices increase where does the money come from?
May 14, 2008 | 4:34 PM
Category: News
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I have ten shares at one dollar each and the shares jump to two dollars each.I doubled my income,but where does this extra ten dollars come from?
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Member Comments Total Comments: 21
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Basher51 read my blog view my photos
May 14, 2008 | 7:26 PM

When you bought your ten shares, you purchased them from someone who owned them. Or, in the case of an initial public offering, you purchased them from the company that issued the stock. If the stock jumps to $2 a share, you haven't made $1 unless you sell the shares. In which case you've sold them to another investor in the company. The stock sale does not directly benefit the company except at the initial public offering and when they issue new shares or a new class of stock. You can find out more about stocks here:
http://www.nyse.com/content/faqs/FaqIndex.html
Basher51 read my blog view my photos
May 14, 2008 | 7:28 PM

This is the link that I meant to use:
http://www.nyse.com/about/education/1098034584990.html
adoseoftruth read my blog
May 15, 2008 | 2:00 PM

Mr. Basher51, as always, is correct.

You could own 100 shares that you buy for 5.00 a share, and in 5 years, each share may be worth 20.00.

The value has gone from $ 500 to $2000. But, although the net value increase is $1500, it isn't income, and not taxed until you sell them. It is simply a reflection of the fact that stock of the company is worth more now than it was five year ago.

It is also possible that the stock value could have gone down. In which case, you would be in a loss situation if you sold at that point.

By being a stockholder, you own a "piece" the the company. The more stock, the bigger the piece. Own over 50% of a companies stock, and you would have control of the company.
BALTHOR read my blog view my photos
May 15, 2008 | 3:37 PM

I purchase the stock with my own money.The stock is just a piece of paper.The money either sits in a Wall Street account or in a company bank account.If the stock value goes down the loss comes out of my wallet.If it goes up the increase comes from when I sell the stock.If I can't sell the stock then it is worth whatever I paid for it.I see that I own just the piece of paper.The company stands alone without stock as the owner's company.The stock is just a method for the company to get working capital.When my company offers stock it takes a chance of being controlled by the investors.I could loose my company in a violent takeover.
adoseoftruth read my blog
May 15, 2008 | 4:03 PM

I think you have the concepts. The following is just a clearer illustration of the concepts if you still are unclear.

Imagine that you own a business. If you were to divide that business up into small pieces and sell those pieces, you would essentially have issued stock. Quite simply, stock is ownership in a company.
The money you raise from selling those "pieces" of your business can be used to build new plants and facilities, pay down debt, or acquire another company. A smart owner will keep at least 51% of the stock, which will allow them to retain control of the day to day activities. Any person or institution that owns over a majority of the stock is called the "controlling shareholder". Essentially, this person can do anything they want - right down to firing the CEO.

http://beginnersinvest.about.com/cs/newinvestors/f/what
isstock.htm
BALTHOR read my blog view my photos
May 15, 2008 | 4:21 PM

You are saying that when I offer stock that I actually SELL my business.I go through all of the moves to reduce my company to a dollar value then sell my company to the investors.What is the advantage?Nobody would ever sell their company in this manner.Wall Street raises the price of sweet crude and I loose my company.
BALTHOR read my blog view my photos
May 15, 2008 | 4:47 PM

What is being assumed here is a divest of a company.I sell the stock and the money does not come from the company it comes from the purchaser is illogical.Microsoft assumes that Yahoo divested.
Basher51 read my blog view my photos
May 15, 2008 | 5:14 PM

The advantage is that in your initial public offering you are taking on lots and lots of investors. They are handing you money in exchange for a stake in the profit (or loss). You aren't losing control of your company as typically the owners of the company that is going through an IPO will hold back 51% of the stock and offer 49% for sale. Or something similar to that. But if someone gets really aggressive and starts buying up stock, the board of directors of the company can do several things to counter that: Split the stock, thus increasing the number of shares; offer an additional issue of shares (called the "poison pill" strategy).
BALTHOR read my blog view my photos
May 15, 2008 | 5:47 PM

The total value of the stock offered would have to equal the value of my company.I sell my company to the investors.My company would be controlled by anybody with a %51 share.I now have a CEO from Baghdad and I'm out---
Basher51 read my blog view my photos
May 15, 2008 | 5:48 PM

Probably the most elemental thing to know about stock is that for every share purchased by someone there is someone who is selling it. Taking a look at it from a different viewpoint, I'm buying that stock because I think that it will make money for me. The person selling it thinks the opposite. (Or that person thinks that they have made a satisfactory profit on it.) If no one wants to buy at stock at $10 a share, the price drops until someone does want to buy it. The converse is true when the stock price is swinging up. If I bid $11-3/8 for a stock and no one buys, the prices drops until someone does. Or I sell at $11-3/8 and wish taht I had held out for $12 when it reaches that price. There are stocks on the market that sell for literally pennies, because they are only worth that--the compan is in bankruptcy, has not made a profit in years, or is just out and out worthless.
Basher51 read my blog view my photos
May 15, 2008 | 5:53 PM

Not likely that you'd be out. You can reserve ownership by holding most of the shares yourself. You'll have partners (other stockholders). But as long as the company is providing them with an adequate return on their investment, you dopn't have to worry. Voila! Now you know what life is like for a CEO! You can decide how large your stock issue is. You can, as I said, hold the majority shares yourself or limit them to just the employees of the company. The Quadracci family does this with QuadGraphics' stock.
BALTHOR read my blog view my photos
May 15, 2008 | 6:01 PM

I sell my company to myself---almost.I keep %51 so that I can still be the CEO.%51 of the buildings and machines are owned by me.The other percentage of is owned by my employees.I'm on the exchange so now what?
BALTHOR read my blog view my photos
May 15, 2008 | 6:10 PM

All things being equal my property and machines increase in value.However one of my employees sells the stock at a reduced price and my net worth is halved.(?)I think that this is where the Feds step in.
adoseoftruth read my blog
May 15, 2008 | 7:53 PM

Well, you have acquired capital by the investor, perhaps your employees and as the CEO you are obligated to yourself as the controlling shareholder and all other shareholders to run the company in an efficient and profitable manner. If you heard of business that are "owned" by the employees this is what has happened.

If an employee want to sell his/her share(s) at a price below the market value, that is probably not a good idea.

The Fed has no real business in the stockmarket. They affect interest rates and the money supply affecting the relative value of the dollar.

You may want to go to my blog and go the one on Economics. You will probably find it interesting.
Basher51 read my blog view my photos
May 16, 2008 | 8:26 AM

"However one of my employees sells the stock at a reduced price and my net worth is halved.(?)"

Not necessarily. I used to watch the stock ticker a lot (accounts for my brain damage!) You see stock selling "out of sequence" every day. For some reason, often as the result of an option being exercised, a stock sells for less than the current market price. The market shruggs and moves along without a burp. There is a word for someone selling a stock outright at a less than market price: stupid! Why sell a stock for $2 a share that is selling on the market for $5 a share? Unless that stock is sold on a call option, there is no reason and any stocker broker worth his/her salt would argue against it till they're blue in the face.
adoseoftruth read my blog
May 17, 2008 | 3:38 PM

Sometimes employees, (typically execs) are granted stock options which typcially is a certain number of stock at a guaranteed minimum price. In which case, the rest of the stockholders (the company) pay the difference if the market price is less than the guaranteed price.
BALTHOR read my blog view my photos
May 17, 2008 | 6:10 PM

When I divest my corporation to be on the stock exchange I turn its entire net worth into shares.Who will purchase my stock if they could even afford to?One employee sell a share for a nickel and all the shares drop in price?
adoseoftruth read my blog
May 19, 2008 | 12:50 PM

Whoever wants to. If you are di-vesting, then you are selling your stock to other people who via their brokers, or possibly fund managers would buy your stock. You are selling, others are buying.

Typically, stocks are bought and sold pretty quickly at whatever the market price for the stock is. You don't "set" the price that your stock would sell in the open market. The price is what it is, and will fluctuate daily.

If you are say, selling 100 stocks to a family member, and say you sell them all for 1 dollar, then that is a private sale. Someone else just owns your stock. Doing a sale that way won't affect the market value of the stock in any way.
BALTHOR read my blog view my photos
May 19, 2008 | 3:14 PM

I am a multi million dollar corporation.When I divest my net worth and turn it into shares--ten shares of stock will cost my relative $250.000.The point being is,as described by the comments in this blog,I have to sell my corporation to the stock holders.I risk loosing my corporation at any moment.Yahoo almost lost theirs.I see it as AT&T Yahoo and Yang as a fraud.This could be very common.The stocks that appear to be mine on the exchange have nothing to do with my company because I would never divest.
adoseoftruth read my blog
May 19, 2008 | 3:34 PM

That is the risk of going public. If you are the owner of a private, multi-million dollar corp, and you go public you keep 51% of the shares to assure personal control. You keep less, and another organization wants to take the company over, they do so by buying up 51% + of the total number of stock. This of course almost always causes the value of the stock to go up, OFTEN ALOT!

If the current stockholders are unwilling to sell their shares, they can also put the Kabosh on a deal by simply not selling.
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