invest in stocks for better futureWhat is a stock? How do I buy a stock? Why do stocks even exist? Maybe you heard about your friend's brother in law cashing in on that hot ,IPO (Initial Public Offering), and have listened to others tell you how investing in stocks is no better than gambling. In truth, investing is neither terribly dangerous nor very easy. The key to investing is to do some research, pick a plan, and stick to it over the long term.

Simply put, a stock is a share in the ownership of a company. For example, if you started a company, and issued 5 shares, each share would be worth 20%, or one-fifth of the company. If you were to own one share, and buy another, your stake in the company would rise to 40%. The words stock, share, and equity all mean the same thing.

In most cases, a stock is physically represented by an attractively designed, important looking piece of paper called a stock certificate. With today's technology, you won't actually get a certificate. The stock is held in street name meaning the brokerage keeps records electronically. Otherwise, you'd have to take a trip down to the brokerage to deposit the shares, and do the same when you sell them. This is actually how it was done before the age of computers. Scary, huh?

The basic premise behind a share of stock is that shareholders have claim to profits and assets of the company. That is what gives your stock underlying value. Without that, it is simply a fancy piece of paper, or in our day, a worthless electronic record.

Of course, a large company normally issues millions of shares, so owning a few shares doesn't mean you get a free space in their parking lot or access to the copy machine. Even the secretaries won't listen to you. However, you do own a small fraction of the company, and that does give you certain rights, such as voting to elect the Board of Directors and claims to assets.

<< Back to Overview How Stocks Trade >>