"Larry's Lemonade, inc."
This is how stocks work:
One day, Larry decided that he wanted to get enough money to buy a Gameboy. He gathered ten of his friends together and told them this:
(IPO, initial public offering)
"I have a secret recipe for really good lemonade, lemon trees and my house is on a street where a lot of people walk and jog. However, I have no money to buy sugar and glasses and lumber to build a stand. If you each give me a ten dollars, You will get ten percent of the profits after I take out thirty percent for my expertise and labor."
They all agreed and soon Larry was in business. After a few weeks, they were all happily making money. Every week, Larry was able to build his savings up while paying nice dividends to his shareholders.
(Supply, demand, stock price )
One day, Larry called all ten co-owners together and made this proposal:
"I want to withhold paying dividends this week because I just found out that the fourth of July parade is coming by here. I want to plow all our current profits back in to buying more sugar, supplies and hiring some kids to man the stand. If you agree to this, you will make three times more money, but you won't get it til next month."
They all agreed to this except Joe. He wanted his money now, so he talked to Sam, his cousin. He told him about the potential for the holiday profits due the the hot weather predicted and sold his share of the business to him for TWENTY dollars.
After the parade, everyone got an even bigger dividend than expected. Larry made enough to buy his Gameboy. Joe got more than his original money back. Sam got in late, but got some profit, too. And Larry's Lemonade was still in business and doing better than ever. Labor day is going to be an even hotter day than the fourth was. Want to buy some stock? It's a steal at $40 a share!