My friend (we’ll call her, Debra) had always really wanted to start a restaurant, but she was a struggling single mother and there was no way that she was going to be able to put together enough green to start a business like that. She didn’t have a ton of money but she did have lots of good friends and close family who supported her dreams. Okay, we all love Debra, but, even more important to this story, we love her double-baked mac and cheese, southern greens, candied yams, peach cobbler, cornbread, and barbecue. We’d all enjoyed her food many times and knew that anyone else who tried her food would also want to have it again and again. So, we were all willing to pitch in to contribute to her business. This wasn’t charity. It was an investment. By contributing to its startup, we all became part owners in her business. Which is really nice now that she’s starting to make a profit because it means that we each get some fraction of those profits, depending on how much we contributed. (Some of us just get free barbecue when we visit the restaurant).
Investing in a company works in a very similar way. Companies, like Debra, raise money by trading ownership in their company for funds. When you purchase a share of stock in that company, you become part owner. For example, take a look at the Walt Disney Company. You could buy one share of stock in Disney, at the time I am writing this, for $110.55 (U.S. dollars). Don’t get too excited though. There are 1.51 billion shares of Disney floating around. So, your one share of stock would be a 1/1.51 billionth stake in the company.