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Here's the LowDOWn on the Stock Market

A lot of grown-ups talk about the stock market. It's not a place you go to shop for groceries, but it is a kind of market. Because the stock market has been in the news lately, KidsPost has put together an explanation of what it is and how it works.


What does the stock market sell?

The stock market sells pieces of public companies. These are businesses that have decided to sell part of themselves to the public &

people such as you or your parents.

How does it work?

Suppose you and three friends start a lemonade stand, and you each spend $4, for a total of $16.

Then, when you need money to expand, you ask four other friends to give you $2 each. Those friends would be investors in your business. They would get some of the profit from your sales, but not as much as the original four kids.

Some companies work this way, too: To raise money, they sell shares in their company to the public. These shares are also called stock.

What happens to shares of stock?

Once a company issues shares of stock, they can be bought and sold by investors on the stock market. When deciding to buy or sell, investors try to figure out whether the value of a company's shares is heading up or down. If a company makes a lot of money, the value of its stock usually goes up. No one wants to own stock that goes down in value. But sometimes it's hard to know what will happen on the stock market.


Stock market is a general term that describes all the different systems that investors use to buy and sell stock. Many people measure whether stocks are going up or down by looking at a number called the Dow.

What is the Dow?

The Dow Jones industrial average is based on the stock prices of 30 major companies. These companies are involved in computers, vehicles, food, banking and other products and services. These big businesses sometimes are called "blue chip "companies." Here are a few you may have heard of: Caterpillar, Coca-Cola, Home Depot, McDonald's, Microsoft, Verizon, Wal-Mart, Walt Disney.

What does the Dow measure?

If you wanted to know how fast a typical fifth-grader can run, you might time all of the fifth-graders at one school and average the results. That would give you an idea of the speed of fifth-graders in your area.

The Dow is like that: It's only a few stocks, but they are for companies from a wide range of industries. If the Dow goes up a lot, it's a pretty good sign that a lot of stocks went up that day, even ones that aren't in the Dow average. There are always exceptions &

kids who run faster than everyone else or kids who aren't feeling well one day. It's the same with the Dow: Even on days when it rises, some stocks might go down.

Why do people care if the Dow goes up or down?

If the Dow goes up, it probably means that a lot of stocks went up in price, making money for investors who own them. That's why people who own stocks are happy when the Dow goes up, and why they worry when it goes down.