Money & markets · 3

What is a stock?

A stock (or share) is a small piece of ownership in a company. Own one share of Coca-Cola and you own a tiny slice of every factory, brand and future profit of Coca-Cola.

👴 In one sentence A share makes you a part-owner of a business: when the business does well, you do well; when it struggles, so do you.

What a share gives you

💵 A share of profits

Paid as dividends (if the company pays them) or reinvested to grow the business.

🗳️ A vote

At the annual general meeting: electing the board, approving big decisions. One share, one vote (usually).

🧾 A claim on assets

If the company is wound up, shareholders are paid last, after employees, tax authorities and lenders.

How you earn money from a stock

Example: 10 shares bought at $60 held for one year

Price paid: 10 × $60600

What you invested.

Dividends received: 10 × $220

Income return: cash paid to you by the company.

Value after 1 year: 10 × $66660

Capital gain: the price rose 10%.

Total return = (60 + 20) ÷ 60013.3%

Price gain + dividends, divided by what you paid. Always compare total returns.

Why do share prices move?

Every second, buyers and sellers agree on a price. In the short run, the price reflects news, emotions and supply and demand. In the long run, it tends to follow what the business actually earns. In Benjamin Graham's famous words: "In the short run, the market is a voting machine; in the long run, it is a weighing machine."

Company results: profits above or below what investors expected.
Interest rates: higher rates make safe savings more attractive and future profits worth less today (the DCF lesson explains why).
The economy: recessions hurt most companies' sales.
Sentiment: fear and greed can push prices far from value for a while.

Market capitalisation = share price × number of shares → the price of the whole company

Kinds of shares

Common (ordinary) shares	The normal kind: votes and variable dividends.
Preferred shares	Usually no vote, but a fixed dividend paid before common shareholders get anything. Somewhere between a share and a bond.
Share classes	Some companies have several classes with different voting rights (Alphabet: GOOGL with votes, GOOG without).
ADRs	Certificates that let a foreign company's shares trade in the US in dollars (e.g. Toyota as "TM").

Tickers and indices

Each listed share has a short code, the ticker. Outside the US a suffix shows the exchange: 7203.T (Toyota, Tokyo), SAP.DE (SAP, Germany), MC.PA (LVMH, Paris), H2O.RO (Hidroelectrica, Bucharest). An index follows a basket of shares to show how "the market" is doing:

Index	What it contains
S&P 500	About 500 of the largest US companies, weighted by size
Dow Jones Industrial Average	30 large US companies; the oldest famous index (1896)
Nasdaq-100	100 large non-financial companies on Nasdaq, mostly technology
Euro Stoxx 50	50 large eurozone companies
BET	The most traded companies on the Bucharest Stock Exchange

The risk side

Stocks have historically given higher long-term returns than savings accounts or bonds, and that is the reward for real risk:

In the 2008–2009 financial crisis, the S&P 500 fell by more than half from its peak.
In February–March 2020 (Covid), it fell about a third in roughly one month.
Single companies can go to zero: Enron (2001) and Lehman Brothers (2008) were both large, famous and admired before they collapsed.

⚠️ The lessonMoney you may need in the next few years does not belong in shares, and spreading money over many companies (the funds lesson) protects you from any single one failing.

✏️ Check yourself: A company has 2 billion shares priced at $50. What is its market capitalisation, and what happens to it if the price rises 10%?

Show the answer

2 billion × $50 = $100 billion. After a 10% rise the price is $55 and the market cap $110 billion. The company itself received nothing: the gain belongs to whoever owns the shares.