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Author: John Thompson Stock Equity Watch
Historically, stock markets originated as a means of providing businesses with the investment capital they needed to grow and expand; and despite the growth of these markets as an arena for pure speculation, businesses' need for investment capital is still the driving force behind the world's markets.
There are two main ways for companies to raise money for business investment - they can borrow it (bonds) and/or they can issue shares - otherwise known as stocks. By issuing shares, they provide individuals with equity in the company. In the investment world, stocks are called equity capital and borrowed money is called debt capital.
Equity (stocks/shares) is fundamentally different from debt in that it represents an ownership interest in a company - when you buy a stock you are buying a portion of the company not loaning the company money. For investors, this key distinction has two important implications.
1. The equity holder is not entitled to any regular payment from the company.
If you lend a company money or buy its debt securities (bonds or money market instruments) you almost always entitled to a regular interest payment. Stocks do not implicitly provide you any kind of regular payment. Therefore, you should watch the company that you made an equity investment in closely.
2. The equity holder is not entitled to the re-payment of their investment
If you lend a company money or buy its debt securities you are entitled to the repayment of that loan at some predetermined date. When you buy a stock you are effectively purchasing part of the company (equity) and the company has no obligation to give you your money back.
Again, you should watch the company that you made an equity investment in closely.
Therefore, it will be in your best interest to use stock equity watch mechanisms to ensure that the money you invested is used wisely. There are many stock equity watch options available for free, but some may require a subscription.
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