What are stocks?

Stocks themselves are a type of ever changing financial account.Stocks are also sometimes referred to as shares.Stocks are considered an investment.It is the hope that by investing in a stock you will see a return on your money.However, loosing the money that you have invested in a stock is a very real possibility.

Stocks are issued by companies.When you buy a stock, you are buying part of the ownership into that company.You therefore share the successes of the company and the failures of the company.The more stock you buy in a particular company, the more ownership you have.

Money from your stock purchases is paid out in dividends.There are no set rules as to how often or how much dividend payouts will be.Usually, the more successful the company is, the higher the dividend will be.It makes sense then that more successful companies have higher priced stock.Higher priced stock is a good thing to the business owners.So even though it may sound counter intuitive, it is in the company's best interest to give out big dividends.

The owner of a stock receives a percentage (depending on how much stock they have purchased) of the company's value, if the company ever dissolves (this includes both bankruptcy and liquidation).This is where the big payouts can happen.Remember that the stock itself means nothing; it is your claim on assets and earnings that will make you money (or give you a return on your initial investment)

Because owning a stock means that you own a portion of the business, not only do you have rights to the successes of that business, but you also have a say in the operations of the business.You are a shareholder.As a shareholder you and other shareholders are entitled to certain voting rights.The more stock you own, the more influential your vote is.Usually these voting rights are limited to election of a board of directors.If you as a shareholder hold enough influence, you and other shareholders can elect to have members of the board removed and replaced.

A benefit of stock is that the liability is limited.The worst that can ever happen to you is for you to loose the amount of money that you invested.If the company in which you have invested accrues a great deal of debt, as an investor you have no responsibility for that debt.You can never loose any of your personal assets.

Stock is issued by a company in order for that company to earn money.There are two ways for a company to get money one is through borrowing money and having to pay it back, the other way is by issuing stock.This is called equity financing.With equity financing the company is not obligated to pay investors back for the money they paid in exchange for a share in the company.The company hopes that the investor will see the initial investment grow and that the share will someday be worth more than the original paying price.

The first time a company issues stock, it is called the IPO (initial public offering).After the company issues the stock it is the investor who then decides when or if it is in his best interest to sell that piece of stock.Usually, when stock is bought it is more than just one share.The stock may appreciate a couple of cents or a couple of dollars.It may also depreciate below the amount you initially bought it for.Either way, managing stock can be tricky but most people are willing to play the stock market game.Buying and selling stock is so appealing because it is a way to make money without really working for it.