What are stocks?

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Andrew Goldman

Andrew Goldman has been writing for over 20 years and investing for the past 10 years. He currently writes about personal finance and investing for Wealthsimple. Andrew's past work has been published in The New York Times Magazine, Bloomberg Businessweek, New York Magazine and Wired. Television appearances include NBC's Today show as well as Fox News. Andrew holds a Bachelor of Arts (English) from the University of Texas. He and his wife Robin live in Westport, Connecticut with their two boys and a Bedlington terrier. In his spare time, he hosts “The Originals" podcast.

What are stocks?

A stock is born when a company decides that it in order to grow even bigger, it will need a fat injection of cash. Unless the owner is lucky enough to have 10,000 rich uncles, the method many companies undertake is selling stock to the public. For a company, this process is called “going public.” It's this process that makes lots of enterprising geeks like Elon Musk and Mark Zuckerberg overnight billionaires.

Private companies can issue stock to investors as well and won't need to go through all the same regulatory hurdles or financial disclosures that public companies do. There are some seriously massive private companies, like Mars, Inc. a company that has probably created enough M&M and Skittles to encrust the surface of the earth with a candy coating. Right now, you won't find Mars or any other private company traded on a public exchange. That's not to say they won't go public in the future.

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Stock can be defined simply as a portion of a company's property and earnings. A person who buys the stock is called a stockholder or shareholder. You'll often hear about a public company’s market cap, short for “market capitalization.” This number can be computed by multiplying the number of stocks it’s issued with its current share price. (The term market cap, for a bunch of reasons, shouldn’t be confused with a company’s value, but rather reflects its financial size compared with other publicly traded companies.)

A person who paid $207.05 for one share of Apple on August 2, 2018, the day the company’s market cap became the first ever to reach one trillion dollars, would own 1/4,829,926,000 of the company, since that’s the number of shares the company had issued on that particular day in history.

There are a number of ways you can start investing in stocks. First, you'll need to decide if you're going to pick stocks yourself or have someone else do it for you. Stock picking is notoriously hard but automated investing is a good alternative, particularly if you are new to investing.

The easiest part of your journey to stock ownership will be to find a broker or an investment platform to make the trade. You can invest online at minimal expense. The real challenge you now face is deciding exactly what you should be buying.

Automated investing allows you to invest your money with little to no knowledge of the stock market. You can open an account and take a risk survey to find out the right portfolio to suit your needs. This is a good option for people who know little about investing or don't have the time to trade themselves.

We might just be a little biased, but we think Wealthsimple is the best home for a first-time or experienced stock investor. Sign up to Wealthsimple now to get started investing or find out more details here.

Last Updated November 7, 2018

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