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A stock represents ownership in a limited liability company, providing investors with a share of the company’s ownership.
Definition of stock
A stock is a form of security that represents ownership in a corporation or company.
During a company’s establishment, decisions are made regarding the number of shares, their cost, and the overall ownership structure. The size of an individual’s ownership is determined by the number of shares they own relative to the total shares issued by the company.
Shares can be acquired during a company’s founding or traded in the open market at a later time. Investing during the establishment allows individuals to actively participate in determining their share size, the total number of shares, and the initial cost.
Valuing stocks
The price and value of a stock are distinct concepts. The price is what an investor pays for a stock, while its value is dynamic, subject to change based on market conditions, the company’s fundamentals, and various trends. Investors often buy stocks with the expectation of a return, anticipating an increase in the stock’s value over time.
The value of a stock is influenced by factors such as the company’s underlying values, future prospects, market conditions, and prevailing trends. It’s crucial for investors to differentiate between price and value when making investment decisions.
Who can buy stocks?
Individuals of legal age, typically over 18, are eligible to invest in stocks. Investors can choose between buying individual stocks or investing in stock funds. It’s important to be aware of the risks associated with stock purchases, and individuals should consider fees charged by banks for such transactions. Investing in a stock fund can be a more convenient option, as it eliminates the need to worry about individual transaction fees.
Companies listed on the stock exchange allow anyone to purchase their shares, while unlisted companies negotiate stock sales individually with potential investors.
Who can sell stocks?
Stockholders, whether private individuals or companies, generally have the freedom to sell part or all of their shares at their discretion. This flexibility provides liquidity to investors, allowing them to adapt their portfolios based on changing circumstances.