Stocks are the building blocks of the stock market. If there weren't stocks, there wouldn't need to be a stock market and you wouldn't need to worry about learning how to invest in it. Luckily for you, there are stocks, there is a stock market and you can learn how to invest in it.
So what is a stock? In it's simplest terms, a stock is a certificate that designates ownership in a company.
When you buy a share of stock, you literally become an owner of whatever company the stock you bought represents. If you buy a share of stock in General Electric, you become an owner of General Electric. If you buy a share of stock in Google, you become an owner of Google.
Stock Shareholder Rights
As a stock holder (i.e. owner of the company), you have certain rights.
1. You have the right to vote for members of the board of directors
2. You have the right to receive dividends if the company distributes them
3. You have the right to sell your stock
Why Companies Issue Stock
Companies need money to operate, and they can raise that money in one of two ways: they can borrow the money (debt) or they can sell ownership in the company by issuing stocks (equity).
Each method for raising money has its pros and cons, but when you boil it down to the basics, it looks like this. When a company borrows money, it has to pay that money back. When a company issues stock, it doesn't have to pay anything back.
Why Would You Buy Stock?
You should buy stock for one reason only: you hope it will make you money. When you buy a stock, you can make money in one of two ways:
1. You can receive dividend payments from the company
2. The stock can increase in value and you can sell it for a higher price
Both methods of making money from owning a stock are beneficial to you as an investor. Of course, you need to always remember that you can also lose money when you buy a stock, but hopefully you can keep that to a minimum.
Video: What are Stocks?
Now that you've got the basics of what a stock is, check out the video below and see what else you can learn about stocks at the whiteboard.
Taking Your Next Step
Once you're comfortable with stocks, it's time to move on and learn about Mutual Funds.
