What you own
A stock, or share, is a small ownership stake in a company. If the company grows and earns more, the share price tends to rise over time. Some companies also share profits with owners as dividends.
Common styles
- Growth. Companies expanding quickly, often reinvesting profits. Higher potential, higher swings.
- Value. Established companies priced below what analysts think they are worth.
- Dividend. Mature companies that pay out regular income.
- Blue chip. Large, financially strong leaders.
Useful terms
- Market cap
- Total value of all of a company's shares.
- P/E ratio
- Share price divided by yearly earnings per share. A quick way to compare how richly companies are priced.
- Dividend yield
- Yearly dividend divided by share price.
Risks
Individual companies can fall sharply on bad earnings or news, and can even fail. Spreading across many companies and sectors reduces this. Stocks as a whole have historically rewarded patient investors, but with deep temporary drops along the way.
Key takeaways
- A share is part ownership of a business.
- Growth, value and dividend styles behave differently.
- Hold many companies to reduce single-name risk.
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This lesson is general education and not personal financial, tax or legal advice. Investing involves risk, including loss of principal.