Everybody talks about investing in the stock market. Everybody says that stocks are the way to go. But then you stop and think, What exactly are stocks?
Stocks are basically little pieces of a company. When you own stocks with a company, you own a little pieces of that company. The more stock you own, the more of the company you own. Stocks are also known as shares. This is because when you own stocks with a company, you are entitled to claim or share part of their earnings.
How much are stocks worth? That depends on how much investors think the company is worth. Note here, I said “investors think”. That does not mean that a company is actually is worth what the investors think. The words “investors think” were a major reason the dot com bubble burst. Investors paid far more for their stocks with internet companies that made no money in the hopes that someday the companies would be worth more than the stock they bought. Then some internet companies folded and the stock market went spiraling as people tried desperately to dump their dot com stocks for anything they could get.
How many stocks does a company have? That depends on how much the company is actually worth. A company usually sells a predetermined amount of stocks at their initial public offering or IPO. Later, as the value of the stock grows, they may do a stock split. This is where a company will increase the number of stocks but not the total value of the stocks. For example, if you own one stock or share of a company worth $50 and the company does a two-for-one stock split, you would now have two shares that were worth $25 dollars apiece.
Stocks from different companies have stock symbols. These are a few letters based on the company’s name that represent a company. For example, Amazon.com is represented by the letters AMZN. These symbols are used to look up a company’s stock quote.
A stock quote is the estimated cost of a share if you were to buy right at that time. I say estimated because, first of all, most stock tickers are up to twenty minutes behind the actual stock market and secondly, prices may fluctuate rapidly so even if you got a straight from the market quote, even if your stockbroker rushed to buy or sell your shares, the price may have changed.
And that brings us to the last part about stocks, the stockbroker. Stocks can not be bought by just anyone. The stock market is highly regulated and to keep track of all the trades that are happening all the time, only a certain number of people are allowed to actually trade stocks. These people are called stockbrokers. When you wish to buy or sell stocks, you must do this through a stock broker.
That is a little about company stocks, And, by the way, even though I mentioned Amazon in this article, that doesn’t mean I think you should buy their stock. Buying stocks should be something that is done after lots of research into the company you would like to buy stock from. But at least now you know exactly what stock is.
To learn more about the stock market and how stocks work, visit Yahoo Finance’s Stock Education Center.