What is a stock? How do I make money off of it?

What is a stock?  C'mon, you're killing me.  It's...this...thing, that I buy low and sell high.

Well, that was less than helpful.  I like to relate this to a lemonade stand.  I have a lemonade enterprise that I want to sell...and I mean NOW!!  I go to my buds: Joe, Jack, Jock, and Jae.  I give them this ridiculous sales pitch, and those suckers bite - I mean they really bite hard.

What I've offered is for them to fork up $25 a piece, a total of $100, and they can be part owner of my enterprise.  I give them each 1 share of ownership, for a total of 4 shares.  For this example, let's assume that I just want to run, but not own, the enterprise.  The number of shares doesn't really matter.  They could each have 25 shares at $1 a piece, or 1 share at $25 a piece.  Either way, they own 1/4 of the company for $25 each.  That is the simplistic form of a stock.

But how do I make money off of it?

Very good question.  Let's continue with the lemonade enterprise scenario.  Each individual owns 25% of the company, but how do they make money?  I am going to continue running and growing the company with the $100 dollars the four owners invested, but the owners never make a dime if I don't give them any of it...and I am using every spare penny I have to grow the company.  Joe is fed up.  He wants a return on his investment.

Enter Jake.  Jake wants in to the lemonade business.  He convinces Joe to sell him his 1/4 share.  Joe convinces Jake that his 1/4 share is worth $50 (rather than the $25 he invested) now that I have "grown the business."  They make a deal, and Joe makes $25 on top of his initial $25 investment.  Who knows if $50 was a fair price - that is Jake's problem (he probably analyzed the assets of the company, any debt, and theoretical future growth prospects before agreeing to it).

So..what's the point?  Owning a stock is worthless until you sell it.  You have to buy it and convince somebody that it is worth more than you paid for it to make money.  The stock market is so plentiful with buyers and sellers that this happens a bazillion times a day.  In the real world, you don't have to personally market your shares, companies you're invested in, "the news", and other sources do that for (and sometimes against) you.  So you just move with the mass market, follow the price that people are convinced to buy and sell at by checking the stock quote, and decide if you are convinced to buy or sell at that price.

Well, one caveat.  Some companies pay a monthly or quarterly ("3-monthly") dividend.  Instead of pouring all available earnings back into the company, they have money left over.  So they can decide to give some of it to each share owner.  Pretty generous of those guys.

Common Sense Take: We are pretty much attempting to make money off of trading baseball cards...if you want to be cynical about it.