What Are Stocks?

Introduction

Stocks, also called equities or shares, represent ownership in a company. When you buy a share, you become a part-owner of that business. This lesson explains what stocks are, how they work, and their core benefits and risks.

Ownership in a Company

A company divides its ownership into shares. Each share is a tiny slice of the business. If you own shares, you own a proportional part of the company's assets and profits.

Company ownership
   |
   +-- split into shares
          |
          +-- you buy 10 shares = 10 shares of the company

How Stockholders Benefit

Stockholders can benefit in two main ways:

1. Capital appreciation — the share price rises and you sell for more than you paid 2. Dividends — the company pays part of its profits to shareholders

They may also get voting rights on major company decisions.

The Risks

Stocks are not guaranteed:

• The share price can fall — in the worst case to zero if a company fails
• Dividends are optional — the board decides whether to pay them
• Stock markets can be volatile in the short term

How Stocks Are Priced

Supply and demand set stock prices on exchanges. Long-term, a stock tends toward what investors believe the company is worth — judged through fundamental analysis and valuation ratios.

Real-World Example

You buy 20 shares of a company that makes coffee machines. You get a small ownership stake. The company earns a profit, the share price rises 15%, and it pays a modest dividend. Your total return = price gain + dividend.

Summary

• A stock = partial ownership of a company
• Benefit via price appreciation, dividends, and voting rights
• Risks: prices can fall, dividends are optional
• Prices move with supply/demand and the company's perceived value
• Stocks are a core growth asset in long-term portfolios

Next Lesson

Not all stocks are alike — let's look at the main types.