Stocks are a fundamental part of many investors’ plans to build wealth. But they’re also a complicated investment that can be hard to understand, even for experienced investors. Stocks (also known as company shares or equities) represent fractional ownership of a public corporation. Owners earn money when the share price increases and receive dividend payments when companies distribute them. They can also lose money when the share price falls.
To buy and sell stocks, you need a brokerage account. The broker (or a computer the broker owns) purchases or sells the number of shares you want to buy or sell for your account. To find the stock symbol for a particular company, look at the investor relations page on the company’s website or their most recent quarterly income statement or earnings release. Then, look up that company’s stock price on a financial site like Yahoo! or Google Finance.
Public stock is what you’re probably thinking of when you think about stocks, and it’s the kind that trades on a market and could be covered in the news. A private company can choose to list its shares on a stock exchange, like the New York Stock Exchange or Nasdaq, to raise money and grow the business. When a company goes public its shareholders can buy and sell the shares on the market, and that opens up the company to more scrutiny and regulation by the Securities and Exchange Commission.
The value of a stock is determined by supply and demand, the oldest economic principle. When the demand for a particular stock outweighs the supply, then it’s more valuable, and its price will rise. If there’s an abundance of stock relative to demand, then its price will fall as buyers compete with one another in the marketplace to buy it up at a lower price.
As with any investment, it’s important to evaluate each stock on its own merits and consider how it will fit in your overall portfolio. It’s also vital to understand how the market works and what factors are driving prices up or down.
There are many different ways to assess a stock’s value, from looking at its revenue and earning power to its current market position to its past performance. A fundamental analysis will also take into consideration the company’s growth potential and the ability of its management to make wise decisions when it comes to financing and resource allocation.
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