Learn what stock represents, why companies issue it, how stockholders make money, and how stock differs from bonds and other securities.
Stock is a security that represents ownership in a corporation. When investors buy stock, they are buying an ownership claim on the company’s assets, earnings, and future growth rather than lending money to the company.
In everyday usage, “stock” often refers to common stock. More broadly, stock can include different classes of ownership securities, including preferred shares.
Companies issue stock to raise capital without taking on fixed repayment obligations. Instead of borrowing from lenders, the company sells ownership interests to investors.
That capital can be used to:
Investors accept risk in exchange for the possibility of long-term returns.
A stockholder does not usually own a physical slice of the company’s assets. The ownership is legal and financial.
That ownership can entitle the investor to:
The value of that ownership changes constantly because the market keeps reassessing the business.
This is the standard form of corporate ownership. It usually carries voting rights and the most upside if the company grows.
This is still an ownership security, but it behaves differently. It often has fixed dividend features and higher priority than common stock, but less upside and weaker voting rights.
Investors usually earn returns from stock in two ways.
If the market believes the company is becoming more valuable, the stock price can rise.
Some companies pay dividends, which provide part of the investor’s return in cash.
Stock returns are uncertain. Prices can rise sharply, fall sharply, or go nowhere for long periods.
A $500 stock is not automatically “bigger” than a $50 stock. A single share price tells you very little on its own.
To understand company size, investors usually look at market capitalization, which combines the share price with the number of shares outstanding.
Bonds are debt securities. Bond investors lend money and expect interest plus principal repayment.
Stock investors are owners, not lenders. That gives them more upside if the business succeeds, but also more risk because they are lower in the capital structure.