What is a Stock

What is a Stock

What is a Stock?

What is a stock?

Perhaps the first question people new to the stock market should consider asking is: What is a stock? This question sometimes puzzles those who are unfamiliar with what stocks represent individually or as part of the stock exchange, but the answer is actually quite simple.

Simply put, a stock symbolizes ownership in a company. The more stock investors hold in a particular company, the larger the percentage of the company they own. For instance, if a corporation has 2000 shares of stock outstanding and a person owns 100 of them, then he or she actually owns 5 percent of the corporation.

Those who own stock become shareholders or stockholders in the company from which they purchased the stock, and they remain shareholders for as long as they own the stock. In this way, the stocks investors own reflects the percentage of the company they own.

Stockowners earn or lose money as the company they have invested in earn or lose money. Along with the title of stockowner comes the right to vote on certain decisions relating to the company in question. Those with the most stock in the company, however, have the most say in how the company is run.

Experts have identified a number of stock types that people can acquire:

• Penny Stocks: Stocks offered by small companies with limited growth potential. Such stocks tend to be worth very little.reflecting the perceived value of the company.
• Growth Stock: Stocks offered by relatively new companies that are high on potential but low on stability.
• Blue Chip Stocks: Stocks offered by established, successful companies. These stocks are relatively safe investments.

While knowing what stocks are is one thing, understanding how to acquire them is quite another. And there really is a science to selecting stocks. Investors must determine how much they are willing to spend, what sectors they are most interested in, how stock market indicators will impact long-term stock prices and how long they are willing to wait to make a profit.

Those with a high tolerance for risk might want to consider the biotechnology sector, for instance. While the risks are high, the potential for profits are even higher. But investors who believe that risk should be minimized at all costs, should stick with blue chip stocks.