What is stock? I just dont understand it at ALL! ...?

Question

what is stock ? ...
where does my money go ? ...
who pays me when the stock goes up ? ...



someoneee please help me! ... tell me the whole process of stock.



a best answer will be chosen!

Answer 1

What is a stock: 1) An ownership stake in a company. The drug company Pfizer, for example, has a little more than 7 billion shares of stock outstanding, so if you buy a share of Pfizer stock you'd own 1/7 billionth of Pfizer.

As an partial owner of a company, you are entitled to one of two things:

1) A portion of the company's earnings (this is payed out to you directly in what is called a dividend.)
2) Alternately the company can reinvest its earnings (researching new drugs, hiring staff, etc) in order to make the company more valuable in the future.

Pfizer, for example, made a profit of $2.66/share over the past year, payed out $1.16 directly to investors and reinvested the rest. You'd pocket the $1.16/shr dividend and hope the reinvested money makes the company more valuable down the road.

2&3) Where does my money go? You buy shares of stock from another investor who sells them. When you sell the stock another investor buys your shares.

Stocks trade at a price where the number of shares that people want to buy and the number of shares that people want to sell are the same. If more people want to buy the stock, the price will go up until a large enough number of people want to sell their shares. If a lot of people want to sell, the price will drop until enough buyers can be enticed by the cheaper price.

Making money of the stock market:

You make money by

1) Capital Gains: You buy a stock and later sell it to someone else for more money. In order for this to happen the market has to decide that the stock is more valuable than the company was when you bought it. This generally occurs when investors percieve that the future prospects of a company are better than was previous thought (for example when a company announces that it made more money than people were expecting.)
2) Dividends: You get paid directly. Always nice. And while dividends appear small in relation to the stock price for most companies, they can go up if the company does well.

Answer 2

Stock or a share of stock represents partial ownership in a company. For example if CocaCola has 10,000,000,000 shares of stock and you own one share, then you own 1/10,000,000,000th of the company. Your one share gives you the right to 1 vote for various shareholder things. Also, if the company is profitable and the company directors declare dividends you receive that as a cash disbursment. A dividend may be $1 per share. So if you own 1 share you get a $1 divedend. You don't get paid when the stock does up, but if you bought this hypothetical share of cocacola for $50, and it went up to $60, then you would have a $10 capital gain. There are all sorts of different tax consequences depending on how long you hold it and what type of account you have, as well as transaction costs for the buy/sell. But that's it in a nutshell.

Answer 3

When you purchase common stock you are purchasing a percentage of ownership in the company. The stock price fluctuates for a number of reasons, basically the company's fundamentals (financials) and expectations going forward control the stock price. No one pays you if the stock goes up unless you sell the stock. The company can elect to pay dividends from time to time; a dividend is when the company says "okay we're going to send you a check for .25 for every share that you own." But in most cases you make money on stocks by the purchase, appreciation, and sale of the security; it works like this:

So, for example, say you purchase 1000 shares of Yahoo (Ticker: YHOO) from a discount broker like scottrade. Yahoo closed yesterday at $31.63 so,

Total Cost: 1,000 * 31.63 = 31,630.00 + $7 commission = $31,637

Now that you own the stock your concern is the stock price. When things happen with future expectations or financials it affects the stock price

If it's announced that Yahoo is being bought by Google (future expectations) or their financials had better than expected results (fundamentals), the stock price may go up to say $38.00.

You still own 1,000 shares so,

1000 * 38 = 38,000 - $7 commission = $37,993

Your total profit if you sold at this point would be
$37,993 - $31,637 = $6,356.

There's much more to it than that, but that's basically how stocks work, obviously if the news were that Yahoo would acquire google (rather than being acquired) or if the financials didn't meet expectations, the stock price would go down.

Answer 4

Stock is ownership of the company. Think of it this way, say you start selling widgets on e-bay and you need additional cash to purchase more widgets for resale. You go to a friend and tell him that if he gives you $1000 you will agree to give him 10% of all of your future profits. This gives him a 10% ownership of your business. It works the same way with stock. When stock is initially issued, the cash from the sale goes to the business to buy buildings, inventory, etc. In exchange, the stockholders have a right to hire and fire managers (through the board of directors, who they elect) and a right to the income and assets of the company. When the company makes a profit, the company can either reinvest the profit in the company (by purchasing more assets) or by distributing it to the owners (stockholders) by paying dividends or repurchasing stock.

When you buy stock on the stock market, your money is going to an owner of the company (another stockholder) to purchase their stake in the income and assets of the company.

Answer 5

Stock is an ownership interest in a company.

You get paid when the board of directors decide to declare a dividend from earnings, or when you sell your interest to someone else.