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What exactly are stocks? Stocks represent ownership in a company. By owning shares of stock, you own a piece of a company. If the company does well, the stock may increase in value. If the company doesn't do well, the stock may decrease in value. Some companies may pay a dividend to owners of stock.
What is a stock? A stock is simply a share of ownership in a company. In fact, when you buy stock, you buy shares. When you own a share, you're called a shareholder. A shareholder has a claim on the company's earnings and assets. That doesn't mean you can walk into the company and demand money or walk out with a printer or office supplies.
It means that the value of your stake in the company rises and falls with the success of the business. old. To do this, the company needs to raise money, also known as capital. There are a few ways this company could do this. It could take out a loan, but that would mean taking on a significant amount of debt.
Or it could issue shares of stock. By issuing stock, which is called going public, the company can raise money without going into debt. Instead, it sells shares of ownership and a claim on future earnings to investors. That might make you wonder, why do companies even sell shares? Many companies sell shares to raise money for improving products and or expanding the business.
It's typically first done when a company sells shares to the general public during what's known as the initial public offering or IPO. If the company wants to raise more money in the future, they can sell more shares. There are two ways you can make money by investing in stock. The first is through stock appreciation.
When a stock you own goes up in value. If an investor bought the stock at one price and the price went up, the investor could then make money by selling the stock to another investor at a higher price. The second way is through a dividend. This is a periodic payment issued by some stocks. A dividend is a way for a company to give a portion of its earnings to shareholders.
With all of this buying and selling, you might wonder how are stock prices determined? The price is first set during the IPO process and based on the company's financial metrics, as well as investor interest. Then, like any other product or service, it's about supply and demand. If a lot of people are buying shares of a company and there aren't enough sellers at the current price to fill those orders, the price will typically rise to find investors that are willing to sell.
Conversely, if investors start selling shares, the price will likely fall. It may keep falling until it hits a point where people are willing to buy again. I'm trying to convince people there is a method. There are reasons for stocks to go up. Uh Coca-Cola, this is very magic. It's a very magic number.
Easy to remember. Coca-Cola is earning 30 times per share what they did 32 years ago. The stock has gone up 30-fold. Bethlehem Steel is earning less than they did 30 years ago. The stock is half its price of 30 years ago. Stocks are not lottery tickets. There's a company behind every stock. The company does well, the stock does well.
It's not that complicated. But stocks in the stock market don't always go up. Sometimes they stay the same and sometimes they go down. And sometimes prices change quickly. Because of this, stocks are considered riskier than other historically safer investments such as bonds or CDs. However, investors keep coming back to the stock market because with this increased risk comes the potential for greater returns.
I've had people call me up saying, "I'm thinking of buying the stock at three, how much can I lose?" Well, again, you may need a piece of paper for this, but if you put uh If you if you put $20,000 in a stock at 50 or your neighbor put 20,000 at full at 50 into the stock and you put $20,000 in at three and it goes to zero you lose exactly the same amount of money, everything.
And people say it's three, how much can I lose? Well, if you put a million dollars on it, you can lose a million dollars. Basically, I don't want to buy any stock or if they close the New York Stock Exchange tomorrow for five years, I won't be happy owning it. I buy a farm and I don't get a quote on it for five years and I'm happy if the farm goes okay.
You know, I buy an apartment house, don't get a quote on it for five years, I'm happy if the apartment house produces the returns that I expect. But people buy a stock and they look at the price the next morning and they decide whether they're doing well or not doing well. It's it's crazy cuz they're buying a piece of a business.
That's what Graham the most fundamental part of of what he taught me, you know. You're not buying a stock, you're buying a you're buying a part ownership in a business. You will do well if the business does well and if you didn't pay a totally silly price.
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