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For Kid

The Stock Market

Stock in General.

The stock market has been in the news a lot lately. Your older family members are probably talking about it more than usual, or you might know someone who talks about it. But what is this mysterious "stock market"? Is it a place that sells stock? Well, sort of.
First of all, let's look at what stock is. Stock is an investment that people pay to a company because they believe that that company will make money. It's kind of like a loan, except that payback isn't guaranteed. A bunch of people give a company money, and in return those people (called investors) get a certain amount of shares of stock. The company sells these shares of stock at a certain price; and the more money you pay, the more shares you can buy.
For example, if the price of Disney stock is $10, then you can get 3 shares for $30. When you write Disney a check for $30, they give you 3 shares of stock.
What can you do with it? Most people who buy shares of stock want to sell them for more than they bought them for, so they hold onto them. If the share price goes up to $15, then you can sell your 3 shares of stock and make $15, since you spent $30 originally and you got $45 back.
You might think, however, that Disney is a good company that makes good products and that they might make even more money later on. You could hold onto your stock and hope that the share price goes even higher. Usually, the more money a company makes, the higher its stock price goes. You might decide that you're going to sell only if the share price reaches $30. In that case, you watch the share price until it reaches the $30 level, then sell. What do you make? Well, you get $90, so you make a profit of $60 (since you spent $30 to buy the stock in the first place).


Stock prices don't always go up, though. They can go down just as quickly as they can go up. If you decide to hold onto your stock and the prices goes down below $10, then you would get less money than you originally spent. For example, if the price went down to $5 and you sold your shares, then you would get back $15, meaning that you lost $15 in the deal. This is the danger in buying stocks: Their share prices can also go down.
But they can also go way, way up, which is what has happened in the computer stocks market for the last 15 years or so. (Actually, the last few years have seen computer stock prices drop very rapidly, but the period of fast, continued growth was incredibly long.)
Many companies sell shares of stock, and they depend on the money they get for these shares of stock to pay their bills. The higher the stock share price goes, the more shares the company will usually sell, meaning that more money will be available. The reverse is usually true as well: The lower the stock share price goes, the less shares the company will usually sell and the the less will be coming in. In fact, when the price goes down, more people sell than buy.
The stock market, then, is a collection of the stock trading done by companies all over the country. All of these companies are buying and selling share of stock all the time. Together, they are called the stock market.
What does all this mean to you? Well, you probably don't have a lot of money to go spending on expensive stocks. You might very well have hanging on your bedroom wall a certificate showing that you own one share of Disney stock (or some other kid-friendly company). Your older family members are more likely to own stocks. But it always help to know what they're talking about. You'll have an opportunity to buy and sell stocks someday. You might even do it for a living.

Basic Info

Investment
Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it.
Types of investment
The difference in the use of the term investment between the economics field and the finance field is that economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.
Business Management
The investment decision (also known as capital budgeting) is one of the fundamental decisions of business management: managers determine the assets that the business enterprise obtains; these assets may be physical (e.g. buildings or machinery), intangible (e.g. patents, software, goodwill), or financial (see below). Whatever the type of asset, the manager must assess whether the net present value of the investment to the enterprise is positive; the net present value is calculated using the enterprise's marginal cost of capital.

Economics
· In Economics, investment means the purchase (and thus the production) and/or stock of capital goods and/or technology - goods which are not consumed but instead used in future production. Examples include building a railroad, or a factory, clearing land, or putting oneself through college. In measures of national income and output, investment is also a component of GDP given in the formula GDP = C + I + G + NX. The investment function in that aspect is divided into non-residential investment (such as factories, machinery etc) and residential investment (new houses).
· Investment is often modelled as a function of income and interest rates, given by the relation I = f(Y, r). An increase in income will encourage higher investment, whereas a higher interest rate may discourage investment as it becomes costlier to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an opportunity cost of investing those funds rather than loaning them out for interest.
Finance
· In finance, investment means buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold as an investment, real estate, or collectibles. Valuation is the method for assessing whether a potential investment is worth its price.
· Types of financial investments include shares or other equity investment, and bonds (including bonds denominated in foreign currencies). These investments assets are then expected to provide income or positive future cash flows, but may increase or decrease in value giving the investor capital gains or losses.
· Trades in contingent claims or derivative securities do not necessarily have future positive expected cash flows - so are not considered to be assets, or strictly speaking, securities or investments. Nevertheless, since their cash flows are closely related to (or derived from) those of specific securities, they are often studied as or treated as investments.
· Investments are often made indirectly through intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, or even investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary.
Personal finance
· Within personal finance, money used to purchase shares, put in a collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an investment. Saving within personal finance refers to money put aside, normally on a regular basis. This distinction is important as investment risk can cause a capital loss when an investment is realized, unlike saving(s) where the more limited risk is cash devaluing due to inflation.
· In many instances the term saving and investment are used interchangeably which confuses this distinction. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. To help establish whether an asset is saving(s) or an investment you should consider where your money is invested. If the answer is cash then it is savings, if it is a type of asset which can fluctuate in value then it is investment.
Investment Management
Investing can be a complex activity and there have been countless books about investing that have been written over the years though certain books are considered classics because of their enduring principles that have stood the test of time. Many of the books on investing, including some of the seminal texts were written by investment managers and or famous investors like Peter Lynch, Phil Fisher or Benjamin Graham
Real Estate Investment
· Within real estate, money used to purchase property for the sole purpose of holding or leasing for income and where there is an element of capital risk is deemed a real estate investment. Real Estate investment is distinct from other forms of economic or financial investment in that a real estate is purchased.