Stock Basics

What are stocks?  Stocks are a share in the ownership of a company.  This means you that you own a small portion of everything the company owns.  As an owner, you are entitled to your share of the profits and can vote on important decisions and rulings.  A stock is represented by a piece of paper that proves that you have ownership.  This fancy piece of paper represents one share of the company.  The more shares you accumulate, your ownership stake increases.  Also one stock usually is entitled to one vote when electing board of directors at annual meetings.

As a company shareholder, you are entitled to a portion of the earnings made by the company.  These earnings are usually paid out in the form of dividends.  One important aspect of stocks is the limited liability feature.  This means you are not responsible for the company’s debts or losses.  You can never lose more than the original investment as a shareholder.

Since a shareholder is a part owner of the company, you take the risk of the company not being successful.  This means a return is not guaranteed and if the company goes bankrupt, you are not entitled to any payout until all the creditors have been paid out first.