What is a stock, explained simply
A stock is a small ownership stake in a company. When you buy a company's stock, you become a partner for that tiny slice: if the company grows and is worth more, your stock is worth more; if it does poorly, it's worth less.
What you actually own
Large companies are divided into millions of shares. Buying one means owning a slice of the company: of its profits, its equipment, its brand. You don't manage anything, but you share in its economic fate.
Example: if a company is divided into 1 million shares and you own 100, you own 0.01% of the company.
How you make (and lose) money
In two ways. First: price growth. If you buy a stock at €50 and the company thrives, you might resell it at €70 — you've earned the difference. Second: dividends, i.e. a share of profits that some companies distribute to shareholders every year.
Risk is the other side of the coin: if the company disappoints, the price drops and you can lose part of your capital. That's why betting everything on a single stock is risky, and many prefer to diversify with an ETF.
In short
- A stock = a small ownership stake in a company.
- You earn if the price rises or if the company pays dividends.
- You lose if the company does poorly and the price falls.
- A single stock is risky: diversification reduces the danger.
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