Stock

A stock is a security representing the ownership of a part of a company. If you are a stock owner it means that you are a partial owner of a specific public company. Stocks are sold and purchased on special platforms called stock exchanges.

Shareholders have several rights:

• The right to vote at a meeting of shareholders and thereby participate in the management of the company (this is possible only if the share is a voting share). Most investors own insignificant amounts of shares and therefore cannot or do not want to participate in the voting process.
• The right to receive dividends - part of the profits of the company (if they are paid out). A lot of investors buy stocks in order to receive dividends. Some of them are dividend investors buying dividend stocks on purpose. The idea behind owning a dividend stock is that a shareholder will receive payouts regardless of whether the price of a share goes up or down. Some companies, including, for example, Google, reinvest their profits and do not pay dividends.
• The right to receive part of the company's assets in case of its liquidation.

Why do companies issue stocks?

There are several reasons to issue the stock for a private company.

• Going public. Many billionaires made their fortune when their companies went public. If a company is private, it may or may not generate profit. If it is public, there is such thing as market capitalization, which is the valuation of a company. If the company is worth $10 billion and an CEO owns 10% of it, his net worth is considered to be $1 billion, even though he doesn’t physically own this money.
• Paying off debt. Running a business often requires getting a loan. Most companies, even those with a market capitalization of tens and hundreds of billions of dollars, have debts. If a company is private, it can raise capital by either getting another loan or finding new investors. An alternative option is to go public.
• Raising capital for funding new projects and ideas. If the company lacks the capital to build new offices or fund new projects, it can raise funds from investors by going public.

Types of stocks in the stock market

• Common stock is a regular stock which means it represents partial ownership of a specific company. The right a shareholder gets is proportional depending on the number of stocks they own.
• Preferred stock gives investors preference over common shareholders. If the company dissolves, stock owners get back a specific amount of money. In this way, owning a preferred stock is more secure than owning a common stock. Many companies do not issue preferred stocks.
• Penny stocks are stocks of small companies that have relatively low market capitalization. They are often subject to speculation and manipulation. Penny stocks are known among penny stock traders using pump and dump, email spamming and other strategies to make the price go up and down. While trading many stocks can be profitable, most penny stock traders lose their money.
• Large-cap stocks are stocks of well-known companies offering their services worldwide. This refers to Google, Microsoft, Apple, McDonald’s, Coca-Cola and many other. Some of they pay dividends, some don’t. They are included in an S&P500 index and in this way represent not only the American but also world’s economy.
• Mid-cap stocks are stocks of developing companies that have market capitalization from $2 to $10 billion. Typically, they are not included in the S&P500 index but are often added to investment portfolios with the purpose of diversification against possible stock market failures.

Investing in the stock market is the most popular way to invest in the world.