What are Stocks?
Updated: Oct 6, 2020
If you’re anything like me, the term “stocks” might conjure a series of increasingly vague images in your mind’s eye: nondescript suits, glowing graphs with spiky lines, and---oh, wait---that’s just the stonks meme. Never fear, though! This article will be the perfect introduction to the splendid world of stonks.
A stock (aka share, aka equity) represents a share of ownership in a company.. By investing in a company’s stock, you essentially own a *tiny* portion of said company (a slice of the pie, if you will). Sounds exciting, right? If a company wants more funds to, for instance, expand operations or launch exciting new products, they can issue / sell stock. Of course, you can only invest in a company once it goes public. Many investors are perpetually on the lookout for upcoming IPOs (aka “initial public offerings) from promising new companies.
How They Work:
Most companies will offer different classes of stocks (A, B, C). Each class has different voting rights per share or ownership rights. By owning stock, you can also gain dividends (profit distribution) and shareholder voting rights. The more stocks you own, the more voting power you have to appoint a company’s board of directors. In that sense, you have an opportunity to influence the company’s future!
- Common Stock is (as the name suggests) offered by all publicly traded companies. Share prices aren’t capped by ceilings, so you’ll experience the company’s highs and lows more vividly → large risk, large return. The company *might* pay dividends, but there is no guarantee.
- Preferred Stock usually promises dividends, and these investors receive their dividend payments before common stockholders. Of course, these dividends are fixed → lower risk, lower return.
Written by Serene Pan