304 North Cardinal St.
Dorchester Center, MA 02124
Stocks are a type of investment. A way you can make money. A way you can lose money.
You wanna know more about what is stock? Okay. I’m warning you though, it’s kinda boring. But, you asked for it Playa. So, here goes…
Again, stocks are a kind of investment. When you buy a stock, you are investing in a company. And each share of stock you buy/own represents a fraction of ownership in the company you buy shares in.
For their part, companies make stock available to investors as a way to raise money for the business.
If a company makes 100 shares of stock available and you buy 10 shares, you own 10% of the shares of that company.
Obviously that example was to keep the math easy. Most companies have millions to billions of shares of stock available for purchase.
Apple, for example, has over 5 Billion shares of stock outstanding (shares outstanding is a fancy investment term that means how many shares of stock in a company are currently owned by investors).
Owning shares of stock in a company doesn’t really mean you are a company owner.
If you own shares of Tesla, you can’t walk into Tesla’s headquarters and start poking around or take a Roadster prototype out for a spin. Try it and they will call security on you!
Company property – from chairs and desks to buildings to intellectual property – is legally owned by the company. The shareholders have no claim to that property.
But don’t despair. Keeping things separate like this is a good thing for shareholders. It means if a company goes under, no one can come after you, as a shareholder, for any money the company may have owed them.
As a shareholder, you do get a few benefits.
The main one being, of course, you can sell your shares to someone else (hopefully for a profit).
You are also entitled to a dividend if the stock pays one out. (A dividend is a share of a company’s revenue that it pays out directly to shareholders.)
Lastly, you are able to vote in shareholder meetings.
When you own a few shares of a big company like Apple and own like 0.000000003% of the company, that vote doesn’t mean squat.
However, for those with deep pockets, the more shares you own, the more your vote matters. It still doesn’t mean you own the company and can run things. But you can influence things indirectly because you will have some say over who serves on the company’s board of directors.
There are two main types of stock you can own in a company.
The first is common stock. This is likely what you own if you’ve got some stock in a brokerage account.
Common stock entitles you to the things we mentioned above (selling your shares, getting a dividends and voting).
The other type is preferred stock. Those who have preferred stock usually don’t get to vote at shareholder’s meetings. But they generally have higher dividends. Also, the price of preferred stock also tends to be less volatile than common shares.
Lastly, preferred stock owners are at the front of the line when it comes to getting a piece of the company’s earnings. This includes if things go to hell and the company goes bankrupt. In this case, preferred shareholders are more likely to recover at least some of their investment.
That, in a nutshell, answers the question “What is stock?”. Aren’t you glad you asked?