Stock Analysis Software

How Do You Actually Make Money From Buying Stock

Stock investing is very common especially in developed countries where there are a large number of companies. Investors buy stock from companies and sometimes make a portfolio of it. Portfolio means buying stock from different companies to reduce the risk. Whenever you buy stock you make either profit or loss over it. People seem sometimes confused and they actually don’t know what happens to the stock and how they actually make money out of it.So to reduce this problem you can read our post .

Two basic ways to make money from buying Common Stock:

People make money in two ways when they buy the common stock.

1.When Share Price Increases:

The first to make money is the increase in share price increases. Now you will be eager to know that how the share price of the stock increases. Share price increases in the long run when company goes for expansion of the current business and makes higher profits. In some other cases a company may go for repurchase of its shares/stock (complete phenomena is discusses below). When repurchase of shares occur then the value of existing shares increase and each share represents greater ownership as a %age of total Equity. Another meaning of increase in share price is that it’s the situation in which people are willing to pay you more money for the stocks than the money which you have paid to buy them.

How Do You Actually Make Money From Buying Stock


Dividends are paid to you when company makes some profit and you get dividend on each share that you have. The best way to use your dividend is that reinvest it. Reinvesting your dividend means buy some more stock from it instead of spending this amount because it will bring more profits for you in future. Sometime dividends are paid on quarterly basis and sometimes after a year and sometimes no dividends are paid at all but again it depends upon the company’s policy. You can sign up for DRIP (short of Dividend Reinvestment Plan) which will make you reinvestment automatically.

How the value of investing stock actually increase?

Share prices actually increase or decrease as a result of demand and supply. When about certain stock investors think that its price will increase in future they start buying more of it to make more profit. As a result of more purchasing demand increases which will ultimately lead to increase in share price.

Another thing which leads to increase in share price/value is that of repurchasing the issued shares. In this case of repurchase the supply of shares fall and each existing share in the hands of people or investors worth more. For example a company has 100,000 shares of $ 100 each and its net income is $1,000,000 and EPS (earning per share) is 0.1. This year the growth of the company is 0% due to which it wants to repurchase and destroylet’s say 20,000 shares from its shareholders. Now remaining shares in the market are 80,000 while keeping the earning same i.e. $1,000,000 the EPShas increased to 0.125. Mathematically we can express the increase in the value of shares in the following way

Value of Share = Total Value of the shares Outstanding

Number of Shares Issued

=                   $10,000,000


=     $100/share

When the company repurchased its shares

Value of Share = Total Value of the shares Outstanding

Number of Shares Issued


=                   $10,000,000


=     $125/share

This increase of $25 is the result of increase in the value of Investing Stock.


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