Hey WeSeeders, how’s it going? I’m Tim and I’m going to talk about “companies” and their role in the market. So when you hear the word “companies,” you might think of stuffy guys wearing stuffy suits sitting in stuffy board rooms.
But companies can also be thought of in terms of the burgers we eat and the phones we gab on.
See, companies make the stuff we use every day. Think about what you see in your everyday life: Nike, Apple, and McDonald’s (or Whole Foods, of you’re one of those people who eats an organic apple instead of a huge pile of greasy fries). Those are publicly traded companies.
Wait, let me back up a second here. See, companies come in two flavors: private and public. A private company basically hangs a sign out front that says, “Stay out.” These companies do not want outside investors, they do not want to be listed on the stock market. End of story.
Public companies, on the other hand, welcome investors, are listed on the stock market, and are usually owned by thousands, maybe millions, of investors. Their financial information (profits, losses, sales, etc.) is a matter of public record so that potential investors know what they're getting themselves into.
How do companies get investors? They hold a stock sale. A company’s first stock sale is called an IPO, short for Intense Partying Opportunity.
Ha, we wish. Actually, an IPO is the Initial Public Offering, where the company sells shares of its stock to everyone who wants to buy one.
So let’s stop being theoretical and start getting real. You know Google — if you want to find a used bike shop, you google “buy used bike” and your zip code to get a list of every bike shop in the area. Cool. Well this cool idea came from a tiny company of a handful of people.
Those people knew their product was hot, so they threw an IPO party, put Google on the stock market, and investors bought a whole lotta shares. They took the money from those investors and used it to hire more people, buy new computers, and move into bigger offices.
Fast forward a few years, and Google is no longer just a handful of people — it’s a huge company that does all kinds of stuff beyond just searching for where to get a good used bike. Oh and their share price? It’s gone from $100 to $400. Nice!
We’ll tell you how to get your hands on some shares later, but for now at least you know where they come from — public companies. In our next lesson, we’ll talk about how you can tell whether that company you like so much is any good. I’m Tim, and I’ll talk to you later.
