A stock represents partial ownership in a company. When you buy a share of Apple, Amazon, or any publicly traded company, you become a shareholder — a fractional owner of that business. If the company grows and becomes more valuable, your shares become worth more.
Why Companies Issue Stock
Companies sell shares to raise capital for expansion, research, acquisitions, or debt repayment. Instead of taking out a loan, they sell a portion of the company to the public through an initial public offering (IPO). Shareholders provide capital; in exchange, they get a stake in the company's future profits and growth.
Common vs Preferred Stock
- Common stock: most typical; includes voting rights and dividends when declared
- Preferred stock: priority in dividends and liquidation; usually no voting rights
- Most individual investors buy common stock
- Preferred stock behaves more like a bond — often pays fixed dividends
How You Make Money From Stocks
Two ways: capital appreciation (the share price rises and you sell for more than you paid) and dividends (the company distributes a portion of its profits to shareholders periodically). Growth stocks tend to reinvest profits rather than pay dividends; value stocks and dividend stocks tend to pay regular dividends.
Stock Price and Market Cap
A stock's price is simply what the most recent buyer paid for one share. Market capitalization = share price × total shares outstanding. A company with 1 billion shares at $50 per share has a market cap of $50 billion. Large-cap, mid-cap, and small-cap refer to companies with market caps roughly above $10B, between $2B–$10B, and below $2B respectively.
What Drives Stock Prices?
Supply and demand. Prices rise when more people want to buy than sell (and fall when more want to sell than buy). What influences demand? Company earnings, growth prospects, economic conditions, interest rates, news, and investor sentiment — rational and otherwise. In the short run, prices can be volatile. In the long run, they tend to track business fundamentals.
Stocks are ownership, not gambling — but they do involve real risk. Diversification, long time horizons, and investing only money you won't need soon are the keys to managing that risk.
