Who gets the money?

QWhen I buy a company’s stock, does it get the money? And what do I really get?

— L.R., Warren, Ohio

AYou may assume you’re buying the shares from the company, but when you buy stock on the open market, you’re not. Companies that are publicly traded have already sold shares in themselves when they “went public” via an initial public offering (IPO). Since then, the shares have been traded on the open market between investors. Someone who thinks a stock is a good value will buy shares from someone who is unloading their shares. The company doesn’t get the proceeds from the trading.

Companies do care about their stock, though, because a falling stock price looks bad and can make them vulnerable to being bought out by other companies. A rising stock price, meanwhile, means insiders with stock options or shares of stock in the company can get richer. It can also allow the company to buy another company with fewer shares of its stock.

Owning stock in a company means you’re an actual part-owner in the business, entitled to share in its success.

QWhat do “tulips” refer to, financially speaking?

— C.C., Phoenix

AJust as we experienced an internet (or “dot-com”) stock bubble bursting in 2000, causing many stock prices to plunge, people in Holland in the mid1600s also experienced a bubble bursting: one tied to tulip bulb prices.

This “tulipmania” is one of the earliest documented cases of a speculative investing frenzy. Supposedly, certain tulip bulbs were worth more than $750,000 (in today’s value), and some investors mortgaged their homes to buy tulip bulbs. As you might expect, it didn’t end well.