how do large and small shareholders make money from their stock in a company and is there difference?
In: 2
They all make their money the same way… share appreciation and sometimes dividends. The difference is just the scale. If you own 100 shares of a company that pays 50-cents/sh a year in dividends, you make $50. If you own 100,000 shares then you make $50k in dividends.
There’s two main ways.
First, you can buy and sell the shares. Treat them like foreign money, or bitcoin, in an attempt to buy low and sell high. Trade with other people on the stock market, or even the company itself sometimes sells or buys back its own shares.
The second way is that some corporations pay out dividends. Their profits – or rather, what’s accumulated in their bank accounts – get spread out to their shareholders. It depends on the corporation… so do it regularly, some do it when they feel like it, some never ever do it. Even if it happens, it’s spread among the shareholders so it might be a few pennies to a dollar or two per share. But if you hold shares by the thousands, it could be a nice chunk of change.
Can also borrow against your stock, so say you bought apple way back for 100 bucks and now it’s worth 10,000 you could borrow against your 2 and “use” your gains in a way. Of course there’s risk.
There are differences more for insiders vs outsiders as opposed to large vs small shareholders (assuming the shareholders are private parties). Insiders have to disclose intent to buy/sell shares at some price well in advanced of buying them to avoid insider trading issues. Meanwhile private traders can buy at market value anytime the market is open.
You make money from a stock by the value of the shares you hold appreciating in value, however these gains are ‘unrealized’ until you sell the shares, you are also not taxed on those gains until this time. This is why you see billionaires with ballooning net worth that pay ‘zero tax’. Their shares in their companies are increasing in value, and they are not selling them, so until they do they don’t pay tax on it. Then they start leveraging their shares to borrow money to spend to continue avoid selling their shares. This works well assuming that the shares continue to increase in price. Shares also sometime pay a dividend which is a small cash grant per share given to shareholders.
Latest Answers