When we hear about financial markets and stock values on the news, we often pay attention only to the numbers and percentages, marveling at vigorous rises or destructive falls, but what do these numbers refer to when it comes to stocks?
What are stocks?
A stock, in finance, is a financial security representing a share in the ownership of a corporation. is a financial asset representing a percentage of ownership of a company.
So, as explained in the article on IPOs, companies sell their shares to recover funds. Kind of like what is done with bonds, but there are major differences. The only part in common is the need to drain funds for the company.
Since a stock indicates ownership of a piece of the company represented, the percentage you own depends on the number of those specific stocks you have in your portfolio.
the basic idea is quite simple
at the end of the year or at the close of the fiscal year, the money the company has made, after all expenses have been removed, is owned by the shareholders. These profits have to trickle down to the holders and have only two paths, dividends and capital growth
Assuming a profit of 10 million in the year just ended, the company may decide to split this figure in half. 5 million is distributed through dividends to shareholders while the other 5 million is reinvested into the company.
the company with this money can develop a new product or cheaper methods of production. this should lead to creating more profitability in the company and this has an effect on the price of the individual share, driving it up in price and allowing the small investor to sell it at a higher price.
Obviously as is easy to understand , having a preponderant amount of stock allows you to have a say in what the company does, being able to direct money management decisions. Shareholders must be happy.
Like any business sector, there are companies that are more or less solid and behave differently depending on the period. A health care company is different from one that makes cell phone apps.
Geographic location is also important, as a Western company will behave differently from one in a developing country.
Then there are two big definitions for stocks, namely growth stocks and value stocks
Growth stocks are stocks of young and small companies that have greater potential to grow in the future.
So-called value stocks are of established companies that have a history behind them and generally pay large dividends to shareholders.
Stock dividends are not to be considered the same as bond yields. In fact, dividends are a choice of the company to give money to its shareholders and not an obligation as in the case of bonds, an obligation that if not met leads to the default of the issuer.