What Exactly Is A Stock?
Written by Arjun Shekdar
A stock represents a share of ownership in a company, making you a shareholder with control to a portion of its assets and earnings. The reason big-name companies such as Apple (AAPL) and Nike (NKE) issue stock is to raise capital for growth, which investors buy in order to profit from rising stock prices or dividend payments.
What does it mean to own a share?
Owning shares as an investor changes their status from “investor” to “shareholder”. Becoming a shareholder without a custodial account opens up many doors such as voting on corporate matters or participating in shareholder meetings. Even with a custodial account, you still have these rights, only you have to attend meetings with your registered custodian, and your custodian is the one who officially submits the votes, while you’re allowed to make the decision. However the range of these privileges rests on the shoulders of share type and the company structure, meaning not all shareholders have the same influence.
When companies profit, part of that is distributed to their shareholders in the form of dividends, providing income along with potential price appreciation. But not all companies will give out dividends, firms more centered around growing will reinvest their profits to instead expand their operations.
As a shareholder, you’ll earn when prices trend upwards, and lose when they go downhill. These invariable, seemingly unpredictable changes represent ideals about company performance and market conditions. Capital gains are seen when shares are sold at an even higher price than when they were bought, and losses are the opposite.
Why do stock prices change?
That’s probably a question you’re asking after reading about capital gains and losses. Stock prices vary based on supply and demand, which is driven by investor sentiment, a given company’s earnings, and macroeconomic factors. When there are more people buying a stock than people selling, that’s known as high demand, meaning the prices will shoot up. If it’s the other way around, with more sellers than buyers, we call that high supply, which results in lower stock prices. Prices constantly change to reflect new data, expectations for future earnings, and overall market sentiment.
Conclusion
A stock symbolizes a partial (or a share of) ownership in a certain company, giving you authority over a given portion of their assets and earnings. Simple examples of stocks include Amazon (AMZN) and Netflix (NFLX), who assign stock in order to raise capital for growth of their company. As a shareholder of a stock, you gain certain rights, but depending on many things such as the type of share, company structure, your account (age), and many other important factors, the range is only so wide. Stock prices can flip on a dime, but if you’re a teenager with a custodial account, you might just want to turn towards stocks, as they can result in experience, knowledge, and most importantly, quick money for you.
Sources:
https://www.heygotrade.com/en/blog/shares-explained-definition-types-and-how-it-works/
https://dfi.wa.gov/financial-education/information/basics-investing-stocks
https://insights.masterworks.com/finance/owning-a-share-of-stock-what-does-it-really-mean/
