The 5 Reasons Why People Buy Stocks | Exploring Markets

The 5 Reasons Why People Buy Stocks

You think you're a pro investor. But wait. What if you were asked right now to name the 5 reasons why you buy stock in the first place. Could you do it?


Try it out.

Name the 5 reasons why you buy a stock.

It's actually really hard to do and not taught or explained to enough people. So if you're a new investor, this post is also for you. Very quickly you're going to learn 5 reasons why you buy a stock. It will also quickly explain why other people love the stock market and why they're so obsessed with owning stocks.

Matt Levine is a fantastic writer for Bloomberg. He also has the best explanation we've ever seen. These are the 5 reasons why you would own a stock as explained through the eyes of someone who owned General Motors (GM) stock:
1. Dividends: You get a 38 cent dividend every quarter, unless GM decides not to pay the dividend, or to cut it.
2. Dividend growth: If GM decides to raise the dividend, you'll get that too. 
3. Mergers and liquidation: If GM liquidates, or sells itself to another company, you're entitled to a share of the money, after all of the creditors are paid off. 
4. Buybacks: If GM's management decides it has more money than it needs, it might give some back to you by buying back shares, though there are no guarantees.  
5. Voting: You get to vote on stuff, like directors and mergers and whatever.
There you have it.

Dividends, dividend growth, mergers and liquidation, buybacks, and voting. Those the 5 reasons. If you want to learn more about this or read Levine's entire piece, go here.