If you’re unfamiliar with the stock market, it can look like a casino game in Vegas. To make things worse, some people play the market as if they are gambling, resulting in devastating losses.
A stock is a “share of stock,” which quite literally is a share or part ownership of a company. When you own a share, you own a small portion of that company which entitles you to a fraction of the assets and earnings of the business.
Earnings are the company’s income from the sale of its service or products, and the assets are the physical property of the company (commercial buildings, machines, etc.).
Usually, company performance or projected performance influences stock prices. In simplistic terms, let’s say you are investing in a company. If you think the company will do well in the future, you may buy more stock.
If you think the company will go out of business in the future, you may want to sell. Stock prices go up when more people buy, and stock prices go down when more people sell.
Each year on a quarterly or annual basis, profitable companies will divide up their profits and return some of the money to the shareholders (because they own part of the company), or the company will reinvest the dividends back into the company.