What are stocks?
Stocks are shares of ownership in a company. When a company’s owners decide to issue shares, they are in essence dividing the firm’s capital into many shares of equal size. Anyone who owns a share owns a piece of the company, even if it is just a very small percentage. In addition to providing a sense of direct ownership to its bearer, stocks allow their owners (also called stockholders) to benefit from the company’s good performance - as the value of the company rises, so does the value of individual shares. On the downside, this also means that if the company’s performance worsens, shareholders suffer as well.
To take a specific example on how shares work, let’s look at Tesla: the company has 173 million shares outstanding. When you buy 100 Tesla shares, you become one of the owners of Tesla. Your ownership percentage will be very tiny, 0.000058% (100/173 million), but still, you will be an owner with all the rights that come with this ownership:
- The right to receive dividends - when the company allocates dividends, you will receive a part of this. Sticking with the example of Tesla, let’s say that in 2020 Tesla will pay $100 million in dividends - then you will receive $58 (0.000058%*100 million).
- Voting rights - if you are a shareholder, you have the right to attend the company's annual general meeting. At the meeting, you have the right to speak up, ask questions and make comments on the firm’s performance and strategy. And most importantly, you can vote on the topics that will fundamentally influence the future of the company. These topics can vary from the election of the board of directors to the amount of the dividends allocated.
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