Let’s face it: no one really knows how the stock market works. Your coworker who constantly
telling you to “buy the dip” couldn’t explain a P/E ratio to save his life, while your uncle who
“invests long-term” still thinks the Nasdaq is a type of medicine.
But here you are, trying to figure out how stocks create money. Brave. The stock market
attempts to look professional, with men in suits, tickers, and CNBC anchors acting like news
clowns in ties. But underlying all that polished nonsense, it’s a mess fueled by caffeine,
emotions, and a shared fantasy.
People still get paid for this lie. Some people grow rich, while others get Humble Pie. And
you, my reader, are just trying to figure out which piece of cake you want. Get a snack
because we’re going to talk about the “glorified casino” of capitalism that somehow pays for
everyone’s 401(k).
The Basic Scam (Sorry, “System”): Buy Low, Sell High
Let’s go back to the basics and talk about the most obvious method stocks earn money: the
whole “buy low, sell high” thing that your high school economics teacher taught you.
This is how it works:
You pay $10 for a stock.
It rises to $15.
You sell it.
For 36 seconds, you feel like Gordon Gekko.
This is known as capital appreciation, which is a fancy way of saying that you bet right once
and then brag about it for years.
Of course, in real life, it’s a mess. It’s a simple idea, but putting it into action requires a
terrifying mix of luck, timing, and emotional control. Almost everything that people are bad at.
You can do research, look at charts, and listen to analysts, yet you can still buy just before a
crash. Your stock price drops faster than your desire to work on Mondays if there is a
negative tweet, a CEO controversy, or an alien sighting above Wall Street.
But it’s okay. The market always “comes back,” but sometimes it doesn’t.
Dividends: Getting Paid to Stay Still
Dividends are like “doing nothing” but with more money.
Some businesses, the older, more stable ones (read: dull), give their shareholders a part of
their profits. It’s like giving them money for not selling the shares.
These payouts are in cash and happen a couple times a year. They may seem modest, like
“$1.25 per share,” but if you own enough of them, those figures add up. (Which, let’s be
honest, none of us do.)
The argument is that you can actually make money by owning anything. The most basic
form of passive income. It’s capitalism’s way of saying, “You exist, so congratulations.”
Coca-Cola, Johnson & Johnson, and Procter & Gamble are all great dividend stocks.
They’ve been rewarding investors for decades. In the meantime, your portfolio full of startups
is hoping that one of them goes public before the next recession.
It isn’t intended to be exciting to invest in dividends. It takes time, is dependable, and is slow.
That’s probably why no one under 35 talks about it on Reddit.
Even so, it’s wonderful to see money come into your account while you’re browsing through
TikTok.
Stock Splits: Drama Needed Math
You know how sometimes a firm would remark, “We did a 3-for-1 split”? conducted you ever
think, “Why are we splitting things when I’m already broke?”
If one share of a corporation (say, $900) gets too expensive for individuals to buy, they will
break it up into smaller pieces. That one $900 share becomes three $300 shares. The price
changes, but your total worth stays the same. It’s like cutting a cake into additional pieces
but still being hungry.
Stock splits don’t immediately make or lose you money, but they do change how people see
things. All of a sudden, smaller investors can afford to get in, demand goes up, and prices
can go up nonetheless.
It’s the right blend of arithmetic, psychology, and marketing phrases that look like financial
genius.
Let’s be honest: the stock market doesn’t reward smart people. It pays off to have FOMO.
Compounding: The Boring Magic Trick That Works
Now we get to the bit that your finance professor loved: compounding returns.
Compounding is like your money having babies that grow up and acquire jobs before you do.
You buy more stocks with the money you make from dividends and profits. These stocks
make more money, which you also reinvest, and so on.
It builds up over time into actual wealth. Like, money for retirement. The longer you do it, the
more it grows, because arithmetic eventually decides to help you out.
The bad thing? It takes a long time. You can’t post about compounding on Instagram. It’s not
flashy, it doesn’t happen right away, and it doesn’t make you feel good. But it’s the closest
thing to a cheat code in the financial world, sans the Doritos and energy drink.
It’s like watching paint dry, but sometimes the paint sends you a check.
If you invest for long enough, you’ll wake up one day with a lot of money and be old—this is
how capitalism says you win.
The Market Doing Its Thing (also known as Pure Chaos in Slow Motion)
Let’s be clear: stocks don’t earn money in a logical sense. It’s all about the vibrations.
Yes, in a way, it’s supply and demand: the price of a stock goes up when more people buy it.
But the “why” underlying those selections is so surprising that it’s funny.
Maybe it’s the money. It may be inflation. At 3 a.m., Elon Musk might have stated something
that was hard to understand. The market reacts to headlines the same way your brain reacts
to caffeine: it becomes jittery and thinks it’s making smart decisions.
But with time, organizations that make money and come up with new ideas usually become
more valuable. Stocks go up with them. That’s why it’s called “investing” and not “day-trading
yourself into therapy.”
The most important thing is to stay calm and remember that markets change just like your
motivation does in January.
The more you treat your portfolio like a pet—feeding it often and ignoring its tantrums—the
more it will reward you.
Don’t look at it every day unless you like getting your emotions all worked up by red and
green graphs.
The Secret: It’s All About Your Confidence
So, how do stocks create money? The plain answer is that they don’t. People keep thinking
they will make money, and that’s why you do.
We all agreed that stocks are worth something, so that’s why they are. The market’s mood
swings and how well a firm does are both factors that determine its value.
Your portfolio expands as long as enough individuals stay confident and keep buying. If they
don’t, everyone sells in a frenzy faster than people do on Black Friday.
It’s a mix of psychology, avarice, and a common cultural fantasy, and for some reason, it
works.
You want to make more money? Have faith in capitalism. That’s it. That’s the formula, plain
and simple.
And hey, it’s better than putting money under your mattress like a YouTuber who lives off the
grid.
The Part Where We Act Like We Have Control
In hindsight, everyone talks big: “I knew Tesla was going to blow up,” “Apple was an obvious
pick,” or “I’d never touch crypto.” Okay, Jeff. Keep telling yourself lies.
We are all making guesses, though. Some people are better at guessing. Some people just
cover up their mistakes. The market rewards those who wait, punishes those who act
quickly, and trolls everyone equally.
So, how do you really make money?
Get good stocks.
Keep them longer than you did your last relationship.
Put profits back into the business.
Don’t pay attention to scare headlines.
I hope your portfolio aged better than Twitter did.
It may not be sexy, but it’s the only thing that works every time. You can’t predict what will
happen in the market; you can only go to its continuing circus and hope you picked the
proper clowns.
The Existential Wrap-Up (You’re Welcome)
Congratulations on finishing “Stock Market Depression 101” if you made it this far. You now
know that generating money with stocks is primarily about arithmetic, timing, and a little bit of
patience.
You aren’t smarter than the market, but you do know a little more than you did when you
started, which is the victory for most of us.
So, go ahead. Be responsible when you buy. Hold on through the panic. And keep in mind
that what one person calls a “crash” can be someone else’s “early retirement.”
