In Focus

What Is A Stock?

Thank goodness we all survived Hump Day. (I write this especially for working girl Chick Kristin who always makes sure she alerts us to Hump Day. I think it's a rather grotesque word to use for the middle of the week, don't you? Why don't they just say TGIW? Thank God It's Wednesday. Maybe that's already been done.) Anyway, I'm glad I survived mine. We moved up to Canada yesterday, and I don't know if you have ever been to the Great White North, but it's really dry. Cold and dry. Like skin crackin' dry. Anyway, enough about my aging epidermis, today we are going to discuss what a stock is, why a company sells it, and why you might want to buy some.

Let's say the Chicks started a company that sold skin care products. We decided to call it Cracking Egg Creameries, Inc. We have fifteen different products made up of eggs and lanolin. We have lavender, vanilla, chamomile and banana scented lotions, and colors ranging from Sunny Side Up to Morning Benny. We even make a face cream that uses only egg whites for the cholesterol counters.

Well, our friends living in the Great White North can't get enough of the stuff, and with online ordering these days, we are completely selling it out. We decided to expand our business and have a couple retired farmers convert their farms into Cracking Egg Creameries. Brilliant. Now we will keep up with the cream demand. But wait, we need cash. We don't have enough money to expand so we will try and raise some. We will take our company to the people..we will go public. We will sell some stock in Cracking Egg Creameries to earn some money. We need to find a brokerage house to issue the stock and sell it to the people. The public can buy what is called common stock.

Let's say we wanted to raise three million dollars. Someone at the brokerage firm would divide the three million dollars needed by a number of shares to be sold. He could decide to sell 3 million shares at a dollar each, or 300,000 shares at $10 each. Either way, Cracking Egg Creameries (CRAK) will get its $3 million so it does not matter which option is chosen. Let's say he chose the $10 price. A date would be set for our common stock to be sold on the market. It is called the Initial Public Offering, or IPO. Yeee Haaa... the first day of our market sale... Cracking Egg Creameries IPO!

If you were to purchase stock in CRAK, it means that you are a part owner of the company. The piece of paper that is issued to you is called a share. Your share says that you are AN OWNER!! It's your lucky day, not only can you own the cream, you can own part of the company that makes it. This is called Buy What You Know in the Chicks Dozen criteria, a very important factor in our twelve steps. We like to buy stock in companies that we know and use. We like to buy stock in companies that we also think are going to continue to grow. I mean, can't you just see it -- Cracking Eggs Lotions in all the specialty shops in the mall? Imagine what we could do in places like Kenya. I see great growth globally for this young company run by a bunch of Chicks.

If you bought it at $10.00 at the IPO, and a year later, it is worth $15.00, that means your stock had a gain of $5.00, or 50%. Great gain, by the way. Let's say you bought 1000 shares. That would have cost you $10,000. Now your $10,000 is worth $15,000. You want your money back now so you can buy a house. How do you do that? Do you have to own part of the company forever?

No, no silly. You can sell your shares whenever you want, on a business day of course. One click of the sell button, and you have your cash. (Don't sell to early, think of the possibilities when Cracking Egg Creameries branch out into the coffee industry.)

That's it.what a stock is (a piece of paper that says you own part of a company), why a company sells it (to get some money), and why you might want to buy some (to have your money grow with the company).