What Is A Share Of Stock

A share of stock is a single unit of ownership in a company. Buying one makes you a partial owner of that business, with a claim on its future profits through dividends, price appreciation, or both. Most individual investors hold common stock, which comes with voting rights on things like board elections; preferred stock trades that vote for a more consistent dividend.

What Is A Share Of Stock?

Key Terms

• Dividends: A portion of profits distributed by a company to their shareholders on a regular basis. These are distributed when a company doesn’t need their income to continue growing and wants to attract investors.
• Stock: A stock or share in a company is a unit of ownership in that company.
• Shareholder's Equity: An accounting term; Stockholders equity is equivalent to the value of a company’s assets after paying all debts. This provides a clearer metric for the value of a company’s shares.

Understanding A Share Of Stock

A share of stock represents a portion of ownership in a corporation. Shareholders of a company can profit off of the company’s success and growth through dividends and/or selling their shares at a higher price. Most stocks owned by individual investors are common stock, which allow owners to attend shareholder meetings and vote in certain company operations such as board elections.

Investors who own the other type of stock, preferred stock, do not participate in voting, but receive a consistent dividend. Public companies issue shares to raise capital for goals or projects that can help them grow faster than private companies. If a manufacturing company wants to build more factories, for example, the company may issue shares to raise the necessary funds.

Think Of A Pizza:

Imagine a pizza cut into 12 slices. If you take 3 slices, you own 25% of that pizza. You could keep/eat your slices, or immediately resell them at a higher price to other pizza lovers. This is a rudimentary visualization of stock ownership and the potential for profit that comes with it.

When In Rome...

The first mention of anything resembling stocks was a practice called “lease holding” developed by the Romans. Contracting organizations sold tradeable financial vehicles similar to stocks to help the government raise funds for public works projects. The prices of these instruments shifted with the success of the projects they raised capital for. The Coliseum must have been the ultimate growth pick!

The Bottom Line

A share of stock is a piece of a company which you can own. As an investor, when you purchase a share of stock, you are buying a portion of a publicly traded company from another shareholder. The process of buying and selling shares of stock between investors is what causes a stock's price to move with each trade.

Questions

1. In your own words, what is a stock? Give an analogy as an example.
2. What do you gain by owning stocks?
3. What is a dividend?

What Actually Sets A Share's Price

The article above defines ownership, but it only gets to price at the very end: a share's price moves because of the same supply and demand that sets any market price, investors buying and selling it from each other, not because the company sets it directly. Every trade is two people agreeing on what a slice of the company is worth right now, which is why the same share can be worth a different amount an hour later with nothing about the underlying business having changed.

That's also why the key terms in the lesson matter beyond their definitions. A dividend is one of the two ways a share actually pays you back, alongside selling it at a higher price than you paid. And shareholder's equity — a company's assets minus what it owes — is a separate number worth knowing, because it's a rough check on what a company is worth on paper, independent of whatever price the stock happens to be trading at that day.

Inside the Rapunzl investing simulator, students start with a simulated $10,000 portfolio and can watch a share's price move against live market data in real time — a faster way to see the pizza-slice idea from the article turn into an actual, moving number.

This explainer comes from Module 1 of the Rapunzl curriculum, part of the Welcome to the Stock Market unit. Teachers: the accompanying activity and answer key are in the teacher portal.