What Are Stocks?
Stocks represent ownership in a company. When you buy a stock, you become a partial owner of that business.
The Basics
Imagine a pizza cut into 1,000 slices. Each slice represents one share of stock. If you own 10 slices, you own 1% of the entire pizza (the company). As a shareholder, you benefit when the company grows and becomes more valuable.
Why Companies Issue Stocks
Companies sell stocks to raise money without taking on debt. Instead of borrowing from a bank, they sell ownership stakes to investors. This capital helps them expand operations, develop new products, or enter new markets.
Types of Stocks
Common stock gives you voting rights and potential dividends. Preferred stock typically pays fixed dividends but has no voting rights. Most individual investors buy common stock.
Common Stock
- Voting rights
- Variable dividends
- Higher growth potential
Preferred Stock
- No voting rights
- Fixed dividends
- Priority in bankruptcy
- Stocks represent partial ownership in a company
- Companies issue stocks to raise capital for growth
- Common stock offers voting rights; preferred stock offers stable dividends
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