What is a Stock?

The definition of a stock is simple enough; it’s what you do with it that matters.

A stock is an equity investment that represents part ownership in a company. When you invest in a stock, you own a small portion (or shares) of that company.

Simple enough, right? You own a portion of a company, so when that company makes money, you make money. Why then, does investing seem so complicated?

In some ways, buying a stock is like playing chess. The different segments and products on the market all move in different patterns and compete or complement one another. There are mutual funds, hedge funds, ETFs, index funds, stocks, bonds, emerging markets, and on and on. It probably doesn’t help that a stock is also called a security or a position. But when you get beyond the multiple names and break it down, there are some very simple elements to investing in a stock.

Any one of us can buy a share (ownership) in a publicly-traded company (as opposed to a privately-owned company). Most often, this ownership comes in the form of stocks. As long as there is someone willing to sell, you can buy a single stock or as much as you want.

The catch is that what might be a great stock for one investor might not be a good stock for you. So how do you find good stocks to invest in?

The first question to ask is, what kind of stock do you want? Obviously, you want a stock that goes up; that much is certain. But the big question is, how much risk can you tolerate?

If you’re chasing high returns and are comfortable with high risk, you can follow a momentum strategy.

Moving down the risk scale a bit, you could focus on picking good growth stocks. But in growth stocks too, risk can be substantial, and if you can’t sleep well at night because your stock holdings worry you, you’re investing at too high a risk level.

Then there are undervalued stocks. Good undervalued stocks have low risk because ideally, they are so cheap that they can’t fall any lower!

A dividend-paying stock, properly selected, has very low risk and substantial upside potential, particularly over the long term.

When investing on your own, the most common way to buy a stock is through a brokerage firm. Thanks to the internet, using a brokerage firm to invest is easier—and more affordable—than ever. There are a variety of popular online discount brokerage firms—TD Ameritrade, E*Trade, Fidelity— and none of them charge more than $10 every time you make a trade (and some of them no longer charge a dime!).

If you want to dip your toes into investing, download our FREE report, How to Invest in Stocks: How Stocks Work, How to Calculate Return on Investment and Other Investing Basics.

This free report aims to give you the confidence – and the right know-how – to dive right into the stock market. We’ll show you how.