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Stocks – Background and Definition

Stocks - Background and Definition
So let's get started. So what is a stock? It's another form of financing. That's a very simple way of thinking about. What do I mean by that? Suppose you have a great idea, you have two primary ways of financing. One is borrowing and the other is stocks. But that's a very limited view of stocks. Who is it issued by? This is one of those things where stocks are issued by companies, by entities and we need to know that. And it's a very unique and complex thing. Some background for you. I would encourage you to look at the slide over there. This is my favorite chart, as I said.
You have some real assets and on the right-hand side, there's equity and debt and we're gonna put closure to the course by covering all three items. We talked about real assets as the source of that value creation last time. We already know debt and you'll recognize equity when you see it but let's talk about the important features of it and how does it matter. The typical story's the following, you come up with an idea and you think about how do finance it. You finance it initially by some of your own money, you test the idea and if it works out and looks good, what you do is, you think about ways of raising more money.
Now, you'll see later that nobody's going to give you money until you put some of your own. Basically, you ask for money through either stocks or bonds. In initial parts of most projects, it's usually stocks. You'll understand in a second but I wanted you to give you this big picture of what's going on. Stocks don't exist in isolation. They exist because entities that want to create value issue them. Does that mean that all entities create value all the time? Absolutely not.
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Finance for Everyone: Smart Tools for Decision-Making

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