What is a Stock?

Let’s start with the absolute basics – what exactly is a stock? In its simplest terms, stock represents an ownership – or equity – stake in a company. When you purchase shares of stock, you are essentially buying partial ownership of that company.

This includes a share of the company’s profits in the form of dividends and the benefits of increases in the stock price.

Dividends are payouts of company profit to shareholders that are usually made on a regular basis according to the company’s discretion. Dividends tend to paid in cash but may also be paid out in additional shares of stock in some cases.

An increase in the stock price is also known as stock appreciation. This usually happens when investor sentiment is upbeat, earnings reports are positive and/or beat expectations, and profits are retained by the company for future investments.

We’ll get further into these details later. All you need to know for now is that when you invest your money in shares of a company’s stock, you are essentially purchasing an investment vehicle that will grow – or shrink – depending on the direction of that company, its future profits, investor outlook, and earnings potential.