What is a Stock?

Dictionary.com defines a Stock as "the shares of a particular company or corporation".  This leads to the obvious question what is a share.  The same defines a share as "the full or proper portion or part allotted or belonging to or contributed or owned by an individual or group".

So what does all of this mean to you?  Basically it means that if you own a stock, you own a portion of a company equal to the number of shares you own divided by the total number of shares that the company is currently divided into.  These shares have value (which you already know if you have bought any).  This value fluctuates on a minute by minute basis.  You may already know all of this but what you may not fully understand is that even though the value of the stock for a given company fluctuates, the portion of the company that is represented by the share does not.  What I mean by this is say you have an apple and one day you go to the market and that apple sells for $1, you can think of yourself as having $1 worth of apples.  If however you go to the same market the next day and apples have doubled in price to $2 you could say that you now have $2 worth of apples and that you made a a dollar but the total number of apples you own stayed the same.

The next most important thing to know about stocks is what gives them value.  You may think that it is the underlying company and how much they make a year or how much capital they have but this would only be a partial truth.  The value of a stock is directly tied to what people are willing to pay for it.  This is where the economics get interesting.  All sorts of factors are now at play including supply/demand, investor confidence, total trend of the market, and all sorts of other things.  The most important thing to take from all of this is that there is always a Bid and an Asking price for any stock and the two prices are always separated by some margin.  So this is how it works, person A wants to buy a stock at a price of X and places a bid for the stocks that he/she wants at that price.  Now person B who currently owns those stocks gets to decide if he/she is willing to sell them for that price and the price person B is willing to sell them for most typically is the asking price.

Another interesting point to make about stocks is that most often they define the total value of a company.  This means that the value of the company is no longer defined by there production or there capital but rather by the share price multiplied by the market cap (total number of shares being traded).

I hope this information is helpful at beginning your understanding of the stock market I appreciate any feedback you are willing to give me to help me make this blog better.

Also I am taking requests for new topics just email them to coffieguy@gmail.com with the subject line Stock Market Request.

Thank You and have a wonderful day
CoffieGuy