Stocks can be intimidating when you first start looking into them. Today I’ll walk you through what exactly stocks are, how they’re supposed to work, and how they actually work so the whole thing doesn’t seem as scary! What Are Stocks? A stock is a tiny fraction of a company called a share. When you […]
Stocks can be intimidating when you first start looking into them. Today I’ll walk you through what exactly stocks are, how they’re supposed to work, and how they actually work so the whole thing doesn’t seem as scary!
What Are Stocks?
A stock is a tiny fraction of a company called a share. When you buy your first stock, congratulations! You are now a shareholder!
Do not be deceived by the price of a share. The cost of the stock itself does not matter, what really matters is the total amount of stock you own. To make things simpler: 1 $300 Stock in Company A = $300 worth of multiple stocks. When we buy stocks, we own a small portion of the company. Regardless of how much you own, you can still profit from its growth or lose money if it doesn’t.
How They’re Supposed to Work
To put it in an easily understandable scenario, I’m going to use Coke as an example.
When you and the general population go out and buy a bottle of Coke, that creates profit for the company. With enough profit to cover expenses, the company can use the rest of that income to further grow and expand. The small share you bought has grown along with it! If you wish to sell it, it will be worth more than when you bought it.
This is how you make a profit from purchasing stocks. If for some reason the company doesn’t grow and it’s stock value decreases, selling your stock could mean losing money.
How They Actually Work
Sometimes stocks work exactly the way they’re supposed to! But sometimes, not so much.
Stock prices can fluctuate based on many different events. Let’s say hypothetically, the expected earnings for a company come out and they look fantastic. Then when they do report earnings they come out a little lower than expected. They could have still had a very good year, but just come out a little under the line. This can cause people to sell their shares and the stock price to drop.
On the other hand, say a company CEO made a really shady comment that caught a lot of bad press. Stockholders may sell their holdings out of fear it may cause a dip in the company’s worth, triggering a price drop in the stock of the company.
So Now to Review…
There are a lot of factors that contribute to the changing price of a stock, so really focus on what matters. Paying too much attention can do more harm than good, so make sure to only check in on your holdings when you absolutely need to. Avoiding stress trades can really help you grow your portfolio over time.
Being confident in your investments can make a big change in your success. Good luck!