Thursday, December 3, 2009


We can take the understanding of a meaning of a stock by looking at the story of Mr. Smith. Smith owns a multi-million dollar company which he started ten years ago with only a hundred bucks. As his business continues to grow with more challenges and more capital needed to expand it, Smith came up with the idea of breaking down his multi-million dollar company into smaller units and offer them for sell to the interested investors. Each unit of his entire-business-worth cost $25 giving the interested public the opportunity to own as many units they can afford to. A unit of Smith's company is what is called a STOCK.

Stock is a security issued in form of shares that represent an ownership interests in a company. The owners of the company's stock is called a stockholder or shareholder and they receive profit or loss of the company in line with the percentage of stock they own.

The benefit of owning a stock is that you profit as the company profits. Assuming you bought a stock from a Microsoft company and they released a new software which penetrated into the market and made lots of sales, definitely you are rich as the Microsoft.

Owning a stock gives you the opportunity as a shareholder to make decisions that may influence the company.

There are stocks called the COMMON stocks and the PREFERED stock. Having a prefered stock, you are entitled to a percentage of dividend from the company whether they made little profit, so much profit or losses. Common stockholders are more closer to the company than prefered stockholder. Common stockholder actively participate in decisions that influences the company. They are profit only when the company profits and got nothing when the company made losses.

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