Companies go public by offering a specific number of shares in their company to the public through the stock exchange. Investors then can use the stock exchange to buy and sell stocks of companies that they are interested in.

If I knew that I would be a very rich man :) Seriously NOBODY knows exactly how it works. It is more or less a huge casino, you bet whether a share will increase in value or decrease. But as this relies heavily upon human intervention it becomes rapidly chaotic. This means there are no methods of predicting the market reliably and if we can't make a prediction then scientifically we don't really understand anything about it.

Bibi is correct. What drives the stock prices up and down is investors belief of what will happen to the company's profits in the future. When a corporation earns a profit there are only three things they can do with the profit: 1) pay taxes, 2) hold onto the profits-called retained earnings, and 3) pay dividends to the stockholders. The stock price reflects what people think the dividends are going to paid in the future.

It used to be a way to raise money to start a profitable business. Then the investors would share the profits via dividends. Now it is a way for people who have created a business to transfer partial ownership to the public at immense personal profit without having to wait for the business to generate these profits - said profits quite possibly being completely imaginary anyway. Google "dot com boom". The public is lured into the purchase by the prospect of further gains in the value of their shares due to the future success of the business and an increase in value of the shares as public demand for shares increases. Oftentimes this public demand is out of proportion to any real valuation of the business. I am very cynical about buying stock today. The system is gamed by insiders. Profits are not distributed to stockholders but rather divided among top management. If you want to invest in the stock market look for a company with earnings. Look for earnings that come from a well-run business. Look for a company that distributes it's earnings as dividends. You will not make unexpectedly large gains doing this. You will not be able to tell your friends you made 30% in the market last year. If you watch TV and buy stocks the "experts" recommend you may get lucky or you may not. It's just a gamble.