Introduction to Stocks

When we learn any introduction to stocks, the first thing that comes up is that a stock is simply a part or a share of a company.

Once you have purchased a part a company, you become one of the owners of this company; this is also called a shareholder. As such you are entitled to a part of all that the corporation owns and have. This includes its benefits as well. Since a public traded company has many shareholders than your part is significantly small.

In the good old days a stock was represented with a nice fancy piece of paper that the owner was receiving for the brokerage agency at the moment of purchase. In out day and age when everything is done electronically and stock trading is just another mouse click, the paper system has disappeared and left the scene to huge data bases run by brokers.

As an owner you don’t have much to say in the day to day operation of the public company that you are involved with. Your rights are limited to a vote on the one a year shareholders meeting where you can vote for the board of directors. It’s up to the board of directors to take the right decisions to lead the company.

The most important part of being a stock owner is that you will be entitled to the company’s benefits. They are often distributed to the shareholders as dividends. Your part of the company assets could be executed only if it’s in bankruptcy and all the creditors have already taken their part.

That brings us to the liability as a shareholder. As one there is none. You are not financially responsible in case of a bankruptcy and no creditor can turn against you and ask you for the debts the company holds. When holding a stock, the max you can lose is what the stock worth.

Why would a company share its profit without any liability with thousands of other people? There are two main reasons for that. The first one is that any company in order to grow and operate needs cash fluidity. By going out and selling shares it recruits liquid from the general public and investors. The second reason is that the already owners of the company, that have the big majority of its shares before going out to the public, can finally monetize their initial investment and capitalize on their holdings.

There is no obligation to any company to distribute dividends. Some do but most of them do not. Even if they did in the past there is no obligation for them to distribute it in the future. The way most people make money out of stocks is by trading them for their appreciation value. This value is the one determined by the stock exchange market. As in most economical transactions the best money is made when you buy low and sell high.

Hope you enjoyed this small introduction to stock, for further digging in the matter check out the following sections of our site:

• Introduction To Stock Trading
  
  Introduction To Stock Trading - Discover the basics of stock trading. What is it and how stock trading can be handled
• Introduction To Stocks Market Investing
  
  Introduction To Stocks Market Investing - Discover the basics of stock Market Investing. What is it and how stock Market Investing should be handled