Investing for Organizational Sustainability

wall street survivor • investing 101
When business is good and companies are making lots of money,
the prices of stocks generally rise. The opposite is also true; as businesses
do poorly, their stock prices decline.
The place where you can buy or sell shares of stock is called a stock
exchange. In the U.S. there are two major exchanges: the Nasdaq (originally
NASDAQ, an acronym for the National Association of Securities Dealers
Automated Quotation) and the New York Stock Exchange (NYSE), famously
located on Wall Street in New York City.
(A third, the American Stock Exchange or AMEX, was acquired by NYSE
Euronext and merged in 2009.)
Exchanges play a key role in the financial markets. When a company raises
money in a stock offering it sells shares directly to the initial investors. But
when those investors no longer want to hold shares, the exchanges provide
a place where buyers and sellers come together to buy and sell shares. This
is called liquidity.
If you owned 1,000,000 shares of Apple Inc. (AAPL) but you couldn’t find
anybody willing to buy it, then it would really be worthless. But if you
knew you could call your broker, who could send an order to an exchange
where all of the buyers would be standing by, then you would be confident
that your shares would be sold to the highest bidder. The exchanges
provide this liquidity, helping to ensure that sellers get the highest price
possible, and buyers get the lowest price possible.
Investors can make money with stocks two ways:
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through the rise in price of a stock
through the dividends that companies give to shareholders
Companies that have stable earnings and are generating more cash than
is needed to fund additional growth opportunities pay out part of their
reserves every three months as “dividends.” It is a direct cash outlay per
share owned. Companies will actually send you checks in the mail for
owning their stock! Or if you prefer, larger companies will even take that
cash dividend that they would normally pay you and buy you additional
shares of the company. This way your 100 shares of Apple stock will grow
over time based on the cash dividend amount and the price of the stock
when the dividend is paid. And yes, you will end up with fractional shares.
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