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Stocks

This is the sixth part of Investing Basics. You will learn what a stock is, how they operate, how to trade them and their overall impact on the economy.

Understanding Stocks: A Guide to Equity Investment


Stocks, also known as equities, represent ownership in a publicly traded company. When you purchase a stock, you are essentially buying a share in the company, giving you a stake in its assets and earnings.


 

What Are Stocks?


  • Definition: A stock is a share of ownership in a company. When you buy stocks, you become a partial owner of that company.

  • Purpose: Companies issue stocks to raise money for growth and expansion. By investing in a company's stock, you provide it with capital in exchange for a share of ownership.

  • Ownership: The more shares you own, the larger your ownership stake in the company. Your stake entitles you to a portion of the company’s profits and assets.


 

How Stocks Work


  • Claims on Earnings: As a shareholder, you have a claim on the company’s earnings. If the company performs well, you may receive dividends—payments made to shareholders from the company’s profits.

  • Share Value: The value of your shares can fluctuate based on the company’s performance and market conditions. As the company's value increases, the value of your shares may also rise.


 

Example Scenario: Little Johnny and Apples for Allâ„¢


Let’s illustrate with a simple example:

  • Company: Apples for Allâ„¢

  • Little Johnny's Ownership: 2 shares, representing 5% of the company.

  • Profit: If Apples for Allâ„¢ earns $500 in profit, Johnny’s share of the profit would be $25 (5% of $500).


Decision Making:

  • If the Company is Struggling: If Johnny notices that Apples for Allâ„¢ has made a temporary profit but is expected to decline, he might decide to sell his shares to secure the $25 profit before the stock price drops.

  • If the Company is Thriving: If the company is on an upward trend and performing well, Johnny might choose to hold on to his shares, anticipating that their value will increase further.


Golden Rule: Remember the golden rule of investing: Buy Low, Sell High!


 

Popular Stocks to Consider


Here are some well-known stocks that investors often look into:

  • Apple Inc. (AAPL): A technology company known for its innovative products like the iPhone and MacBook.

  • Microsoft Corporation (MSFT): A global leader in software and technology services.

  • Amazon.com Inc. (AMZN): An e-commerce and cloud computing giant.

  • Tesla Inc. (TSLA): Known for its electric vehicles and renewable energy products.


 

Getting Started with Stock Trading


If you’re interested in trading stocks, there are several platforms and apps that can help you get started:

  • Fidelity

  • Vanguard

  • Morgan Stanley

  • Robinhood


These platforms offer tools for buying, selling, and managing your stock investments. Additionally, use resources like Google Finance, news sources, and financial news websites to stay updated on market trends and company performance.



 

Stocks provide an opportunity for investors to share in the ownership and potential profits of a company. By understanding how stocks work and using platforms to manage your investments, you can make informed decisions to grow your wealth. Keep an eye on market trends, and remember to invest wisely!

This revised version provides a clearer explanation of stocks, includes practical examples, and suggests popular stocks and trading platforms, offering a comprehensive overview of how to start investing in stocks.


Check out a neat resource on Stocks:

Stocks: What They Are, Main Types, How They Differ From Bonds



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