What is a Stock?
A simple guide to understanding stocks, ownership, and how the stock market works.
Quick Answer
A stock (also called a share or equity) is a small piece of ownership in a company. When you buy a stock, you become a partial owner of that company and have the right to share in its profits and growth. For example, if you own 10 shares of Apple, you own a tiny fraction of the entire Apple company.
Why Stocks Matter
For Investors
Stocks allow you to build wealth over time by investing in successful companies. Historically, stocks have returned an average of 10% per year over the long term.
For Companies
Selling stocks helps companies raise money to grow their business, hire employees, build factories, or develop new products—without taking on debt.
How Stocks Work: A Simple Example
Let's say a pizza restaurant wants to expand to 10 locations but needs $1 million:
The Company Issues Shares
The pizza company creates 100,000 shares and sells each for $10, raising $1 million total.
You Buy Shares
You buy 100 shares for $1,000. You now own 0.1% of the company (100 ÷ 100,000).
The Company Grows
The expansion succeeds, and the company is now worth $2 million. Your 100 shares are now worth $2,000!
You Can Sell Anytime
You sell your shares for $2,000, making a $1,000 profit (100% return on investment).
Two Ways to Make Money from Stocks
1. Capital Gains (Price Appreciation)
When the stock price increases, you can sell for a profit.
You buy Tesla stock at $200 per share
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Stock price rises to $250
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You sell and make $50 profit per share (25% gain)
2. Dividends (Regular Payments)
Some companies pay shareholders a portion of profits each quarter.
You own 100 shares of Coca-Cola at $60/share
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Company pays $0.50 dividend per share quarterly
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You receive $50 every 3 months ($200/year)
Real-World Stock Examples
Apple Inc. (AAPL)
Tech StockOne of the world's most valuable companies. If you bought $1,000 of Apple stock in 2010, it would be worth over $15,000 today.
Growth-focused stock with moderate dividends
Johnson & Johnson (JNJ)
Healthcare StockA stable, dividend-paying stock that has increased its dividend for over 60 consecutive years. Popular with income-focused investors.
Dividend-focused stock with steady growth
Tesla Inc. (TSLA)
Growth StockA high-growth, volatile stock. The price can swing 10%+ in a single day. High potential returns come with high risk.
High-risk, high-reward growth stock
Common Questions About Stocks
Do I need a lot of money to buy stocks?
No! Many brokers now allow you to buy fractional shares, meaning you can invest with as little as $1. You don't need to buy a full share to get started.
Can I lose money with stocks?
Yes. If the company performs poorly or goes bankrupt, your stock can lose value or become worthless. This is why diversification (owning multiple stocks) is important.
How do I buy stocks?
You need to open an account with a brokerage (like Robinhood, Fidelity, or Charles Schwab), deposit money, and then place an order to buy shares of a company.
What's the difference between stocks and bonds?
Stocks represent ownership in a company, while bonds are loans you make to a company or government. Stocks typically have higher returns but more risk; bonds are more stable but lower returns.
Key Takeaways
- ✓Stocks represent partial ownership in a company
- ✓You make money through price increases (capital gains) or dividends
- ✓Stock prices fluctuate based on company performance and market conditions
- ✓You can start investing with small amounts through fractional shares
- ✓Stocks carry risk—you can lose money if the company performs poorly