What Is a Stock?

A stock represents ownership in a company.

When you buy a share, you own a small piece of that business.

If the company grows and becomes more valuable, your shares usually increase in value. If it struggles, the price can fall.

Public companies list their shares on stock exchanges like the NYSE or NASDAQ. Investors buy and sell shares through brokers.

2. Why Do People Invest in Stocks?

Mainly for two reasons:

1. Capital Growth

You buy at $50. The price rises to $80. You sell.

The $30 difference is your profit (before taxes and fees).

2. Dividends

Some companies pay part of their profits to shareholders regularly.

These payments are called dividends.

Example: If you own 100 shares and the company pays $1 per share annually, you receive $100.

3. Types of Stocks

Growth Stocks

Companies that reinvest profits to expand.

Prices can grow fast, but they can also fall fast.

Dividend Stocks

Stable companies that regularly pay dividends.

Often less dramatic but steady.

Value Stocks

Companies that seem “undervalued” compared to their financial health.

Blue-Chip Stocks

Large, established companies with strong reputations.

4. How Stock Prices Move

Prices move because of supply and demand.

If more people want to buy than sell → price goes up.

If more people want to sell than buy → price goes down.

What affects this?

Company earnings

News and announcements

Economic conditions

Interest rates

Investor psychology (fear and greed matter a lot)

5. Important Concepts to Understand

Market Capitalization

Company size based on share price × number of shares.

Large-cap: stable, lower risk

Mid-cap: moderate growth and risk

Small-cap: high growth potential, higher risk

P/E Ratio (Price-to-Earnings)

Stock price divided by earnings per share.

It helps compare whether a stock is expensive relative to its profits.

Volatility

How much the price moves up and down.

High volatility = higher risk, but also higher potential reward.

6. Risk in Stocks

Stocks are not guaranteed.

Prices can fall because:

Poor company performance

Economic downturn

Market panic

Global events

You can lose money, especially short term.

Historically, long-term investing (10+ years) reduces risk compared to short-term trading.

7. Investing vs Trading

Investing

Long-term mindset

Focus on strong companies

Less frequent buying and selling

Based on fundamentals

Trading

Short-term buying and selling

Focus on price movements

More technical analysis

Higher stress and higher risk

Most beginners do better investing rather than trading.

8. Diversification (Very Important)

Don’t put all your money in one stock.

Spread investments across:

Different industries

Different company sizes

Possibly different countries

Many beginners use index funds or ETFs to diversify easily.

Example: An S&P 500 ETF gives you exposure to 500 large U.S. companies in one purchase.

9. Basic Strategy for Beginners

If you're just starting:

Build emergency savings first (3–6 months of expenses).

Invest money you won’t need soon.

Start with index funds or strong, stable companies.

Invest consistently (monthly if possible).

Think long term.

Avoid:

Emotional decisions

Following hype

Investing money you can’t afford to lose

10. The Most Important Principle

Time in the market matters more than timing the market.

Trying to predict short-term moves is extremely difficult, even for professionals.

Steady, disciplined investing usually wins.