Stocks 101? Starting from the basics

stocks 101

Stocks 101 – What are stocks?

Stocks 101: Stocks also referred to as shares or equities, are part or partial ownership of a particular company or corporation. It is bought and sold through a broker (TD Ameritrade, Schwab, Robinhood, etc). You can also buy stocks directly from the company called “Direct Investment Plans” which is not common these days.

Companies sell stocks to raise capital to expand or maintain operations, so if you own shares (shareholder, investor) you now own a small portion of the company. By owning shares in a company you are eligible to receive dividends, collect the increased value of a stock by selling, and vote at shareholder meetings. 

Stocks 101 – What is the stock market?

The stock market is where the stocks are bought and sold. The New York stock exchange (NYSE) is the largest exchange in the world and before computers took over people wearing suits and ties would buy and sell stocks on the trading floor of the exchange. Now it is mostly done electronically. There are stock exchanges all around the world, from Japan, EU, China, India, Canada, and so on.

Stocks 101 – How do you make money from stocks?

Typically you would buy share or shares of stocks in hopes the value of the stock rises, then you sell for a profit. It’s like you buy a rare Toyota for $1000 knowing the value would go up, eventually, you sell it for $5000 and profit $4000. This is also called valued investing vs trading would be finding a Mercedes that’s worth $5000 for $3000 and taking that profit of $2000.

What are dividends?

Dividends are when a company decides to pay money to its shareholders from its profits. Typically it’s paid out quarterly but there are some that do pay monthly. You can take that money and reinvest by purchasing more shares of that company which can be automatically set up through your broker or it will just be deposited into your account. Not all companies pay dividends and the percentage or rate can be different from company to company. Dividend payments can be stopped at any time by the companies (which can upset investors). 

Stay tuned for “Dividend strategy for extra income” and the “Different types of stocks to invest in”.

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