Easy Guide to Common Stock

Often, individuals who obtain at least a median income will wish to invest in a company. There may be various reasons for this decision. In theory, stocks work similarly to any type of product that a vendor may sell. A salesman will obtain an item at a certain price, and in order to make a profit on this item, he/she will sell it for slightly more than the amount for which it was originally purchased.

The same concept can apply to the stock market. An investor will purchase a stock at a specific price. If a stock is purchased directly from a company when the business is in its infancy, then a share of stock will generally be fairly cheap. As companies become more successful, a share of stock in that company may increase in value.

Once an investor purchases a stock, he/she may sell the share that was purchased, or he/she may choose to purchase shares that are being sold by other individuals. The price that a common stock is being sold and purchased for will determine the value of the stock, and therefore, the financial success of the company and the profit made by investors.

For example, if a common stock is purchased for $20, and the investor is able to sell the stock for more than that, the investor will make a profit on the stock. However, if the individual is unable to sell the stock for $20, and investors are only willing to pay $5 for the stock, then the original buyer will surrender a large percentage of his/her investment.

Consider this then on a national and international scale. Fewer people will invest in a corporation due to the decrease in stock value. When stock prices rapidly decrease throughout the stock market, it may result in a stock market crash.