Stock is the ownership stake in a publicly-traded company that represents a claim on the company’s earnings and assets. A share of stock can be sold, bought or exchanged for cash through a stock market. A large portion of companies’ profits are returned to investors in the form of dividends. Investors can also make money by selling their shares in a company for more than they paid. Stock can be a good investment, but it’s important to remember that a stock can go down in value as well as up.
A stock’s price fluctuates based on supply and demand. The amount of stock available for sale at any one time is referred to as the “float,” and the demand is the number of shares investors want to buy at that moment. A stock’s price changes in order to achieve and maintain equilibrium between these two numbers. The fields of fundamental analysis and technical analysis seek to understand the reasons for a stock’s price fluctuations and try to predict future prices.
Individual stocks are usually categorized based on where they are traded and whether they are restricted or unrestricted. Unrestricted stocks are those that are available to anyone who wishes to purchase them, while restricted stocks can only be purchased through an approved plan. Most individuals invest in stocks through mutual funds or 401(k)s that hold a large number of different company stocks. A person may also purchase stock in a privately-owned business that is not open to the public, but they should be aware that there are risks associated with such purchases.
One of the advantages of owning stock is that it limits your liability. Unlike in partnerships, where the personal assets of owners are at risk if the business fails, the limited liability of companies prevents creditors from going after shareholders’ personal possessions if the company cannot pay its debts. Having limited liability is especially attractive for entrepreneurs who are just starting out.
A company that sells its stock to the public can raise capital and become a publicly-traded company. It is possible to find a wide range of companies that are listed on a major stock exchange, making it easy for investors to buy and sell them. This makes investing in stocks a much more liquid investment than a real estate investment, which can’t be quickly resold. However, the stock market can be a volatile place to make investments and many investors lose money as well as gain it.
It is important to compare the return on a particular stock against its industry’s performance and with a benchmark for its risk level. It can be misleading to look at a single stock’s returns without comparing them to the rest of the market. It’s also important to consider the fact that a company can perform very well in its own industry but still suffer from economic factors or bad publicity that affect other companies within the same sector.
