The number one most important thing we learned last class was the two ways the stock market gives profit. Those two ways are 1) Share price increases and 2) Dividend payouts. When share prices increase, your stock is worth more money, so you can sell that stock for a higher price than you originally bought it for. So for those who bought stock from Apple when the company was just starting spent very little cash on the stock. Now an Apple share costs around $700, so if you held onto the stock you would make hundreds of dollars per share. What most Americans do unfortunately is buy the stock when it’s already high and successful, so there isn’t much room for the stock to go but down.
I was a little confused on dividends during the class period so I decided to ask my dad about them. He told me that the way dividends work is that the company decides whether or not to use some of their profits to give back to their stockholders. Every company has a board of directors, of which the stockholders vote on, and the directors decide whether or not to give out dividends. Most companies do give out dividends. Stockholders can either use these dividends to buy more stock or to keep for themselves. My father’s company receives dividends from their stock, but instead of using it to buy more stock they use it on current expenses.
This is a link to Home Depot’s stocks over the past ten years. As you can see, the stocks are at it’s highest right now in 2012. This would be a good time to sell! However, it might be a good time to buy too because the stocks could continue to rise. The stock market is a gamble; just remember to follow your head, not your heart.
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