What Are Stocks?
Updated: Apr 12, 2021
To be able to invest successfully, we must understand what we are investing in. So let's start by asking, "What are stocks?"
In short, stocks are investments that represent partial ownership of a company. Stocks issued by a specific company are referred to as shares. They are issued by companies looking to raise capital - or money used to provide goods and services - to expand their business. For instance, a car company wants to create shops in foreign countries, but they don't have enough money to do so. By issuing shares the car company will receive the capital needed to expand.
Stocks that are publicly listed on the stock market are sold by IPO (Initial Public Offering) companies. These companies tend to go IPO once they have become more successful and want to expand further. For example, Microsoft decided to go IPO once they became more popular for their computer software. Before going IPO, companies that sell shares are called private companies. Those shares are sold to private investors, including angel investors and venture capitalists.
Some companies issue dividend payments on their shares. Dividends are payouts of small sums of cash per quarter - or every 3 months. Stocks that distribute dividends are usually good long-term investments because you receive a steady form of income.
This here is just a general overview of what stocks really are. Further research, in the kinds of stocks and your personal requirements, is imperative if you want to successfully grow your portfolio - or your collection of investment.
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