Stock

A stock (also called equity or shares) represents ownership in a corporation. When you buy stock, you become a partial owner of the company with rights to a share of its profits and assets.

What Stock Ownership Means:

• Fractional ownership of a company
• Right to vote on corporate matters
• Potential dividends from profits
• Share in company growth (or losses)

Types of Stock:

Type	Characteristics	Example
Common	Voting rights, variable dividends	Most stocks
Preferred	Fixed dividends, no voting	Bank preferreds
Growth	Reinvests profits, high P/E	AMZN, TSLA
Value	Mature, pays dividends, low P/E	JNJ, KO
Blue Chip	Large, stable, industry leaders	AAPL, MSFT
Penny Stock	<$5, highly speculative	OTC stocks

Stock Returns Come From:

1. Capital Appreciation: Stock price increases
2. Dividends: Share of company profits
3. Total Return: Appreciation + Dividends reinvested

Historical Returns:

• S&P 500 average: ~10% annually (nominal)
• ~7% real return after inflation
• Outperforms all other asset classes long-term

Key Stock Metrics:

Metric	What It Measures
Market Cap	Company size (price × shares)
P/E Ratio	Price relative to earnings
EPS	Earnings per share
Dividend Yield	Annual dividend ÷ price
Beta	Volatility vs. market

Stock Market Capitalization:

• Large Cap: >$10 billion (stable, lower growth)
• Mid Cap: $2-10 billion (growth potential)
• Small Cap: <$2 billion (highest growth, risk)

How to Buy Stocks:

1. Open brokerage account
2. Fund the account
3. Research companies or buy index funds
4. Place buy order (market or limit)
5. Hold for long-term growth