Why Stocks Make Money

Why Stocks Make Money

The key difference between stocks and bonds

How homeowners are like stockholders

How companies cheat bondholders

The key difference between stocks and bonds

If you buy a company's stock, the managers of the company are actively trying to enrich you -- for the most part

If you lend money to a company, the managers of the company are actively trying to cheat you

How homeowners are like stockholders

Both own equity

Both actively work to improve their equity

Company management constantly tries to fend off new competitors and enter new markets

Homeowners fight nuisances and strive to improve their home's attractiveness

While at the same time both try to cheat their lenders

If interest rates fall, both try to refinance at lower rates

How companies cheat bond holders

Constant battle between lenders and borrowers

Lenders can only hope to protect themselves with a stong contract at the front end of the deal

Companies can enrich the shareholders at the expense of the bondholders if the company is able to take on more debt