A share of stock is a small piece of ownership in a public company. It carries certain benefits, like a share of a company’s profits and the potential to see your investment rise over time. In contrast to other forms of business ownership, such as a partnership, owning stocks also means that you are not liable for the debts of the company you invest in. This is called limited liability.
The fundamental reason for a company to issue shares of stock is so that it can raise money from investors who think it will prosper in the future. This money helps pay for the company’s operating expenses and allows it to grow. It can also pay out dividends to shareholders.
For most people, buying and selling stock is done through a brokerage account. When you want to buy or sell a particular stock, you simply type the ticker symbol into your broker’s website or app and then tell it how many shares you wish to purchase or sell. The broker (or a computer it owns) then goes to the stock market and makes the transaction for you.
Stocks can be traded on a stock exchange or private marketplace. The exchanges are regulated by federal and state regulators to ensure that all transactions are conducted fairly. The most popular exchange is the New York Stock Exchange, which was founded in 1888 and is currently a public company.
As you probably know, the value of a stock fluctuates up and down on a daily basis depending on supply and demand. The law of supply and demand is very basic: if there are more buyers for a stock than there are sellers, the price will go up. If there are more sellers than buyers, the price will fall.
Over the long term, stock prices tend to be driven mostly by earnings growth. This is why you hear so much about the price-to-earnings ratio. It measures how much a company is worth by comparing the current stock price to the per-share earnings.
It is also possible to measure a company’s value using a variety of other metrics, such as book value or revenue. However, a company’s stock price is still the best way to gauge its value for most investors.
One of the great things about investing is that you can’t always time the market. There is no such thing as a perfect moment to get into the market, and even when you do enter the market, there is no guarantee that you’ll make a profit. That’s why it’s so important to have a plan and stick with it. In the long run, most investors make money by holding their investments for a period of years.
