How do stocks work and how do you make a profit off of it??
In: Economics
There’s 2 ways to make money off of stocks. Dividends and buying low/selling high.
Dividends are money the company decides it can share with their shareholders. This is basically the profits that they decide not to reinvest and instead send to their shareholders.
Buying low/selling high is generally seen as the “real” way to make money in the stock market. In general, if the company is doing well, their stock price will rise much faster than whatever they pay out in dividends.
That second aspect leads to an interesting phenomena. You know how CEO’s are generally paid in stock? Well, paying them in stock adds shares in the company to the market. This should cause stock prices to go down because there’s a larger supply. But that generally doesn’t happen for companies that are doing well because of investor demand for the shares. In reality when CEOs are paid in stocks, the shareholders are actually paying their salary. Not the company itself. This is why it’s such a common practice, companies are offloading the cost of their CEO to the shareholders.
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