What are stocks?

What is a stock?

Note: Explainer video shared from investopedia's online content library

A stock, commonly called a share, gives you partial ownership of a company and means you can claim part of their assets and/or earnings. The more stock you own in a company, the greater your ownership. If the company does well and increases in value, your stock increases accordingly. If the company does poorly, your stock will lower in value. If the company decides to hand out some of its earnings back to investors, you are entitled to receiving some extra cash. These are called dividends.

Investing in stocks is a great way to increase your exposure to a company’s successes and even collect income along the way. On the downside, you also need to be ready to stomach greater losses if the company is performing poorly.

A practical example:

Joanne bought 1 stock in HappyBubbles for £10, they manufacture and sell organic bubblegum. The company has reported that their sales have skyrocketed. As a result, the stock increases to £11 for a lofty 10% gain. A few months later, HappyBubbles announces that they’re re-distributing £1000 from their profits across the 1,000 stocks out there. Joannes owns 1 stock, and is entitled to a £1 dividend (£1,000 distributed across 1,000 stocks = £1 dividend per stock).
 

This explainer article is part of our ongoing education series to inform and educate the next generation of investors, by explaining key investment topics.