Stocks are not just a way to make money but also a tool of influence. They can grant voting rights at shareholder meetings. A stock's price depends not only on a company's profit but also on market expectations. Even profitable companies can see their stock prices fall due to panic or news.
Stocks first appeared in the 17th century when the Dutch East India Company sold shares in its business to finance trading expeditions. Since then, the stock market has evolved into a global system influencing the economy, politics, and even the lives of ordinary people.
- 1602 – The Birth of the Stock Market. The Dutch East India Company was the first in the world to issue publicly traded shares. This allowed ordinary people to invest in businesses that were previously financed only by wealthy investors.
- 17th-Century Stock Market Frenzy. Speculation quickly emerged. In the Netherlands, the "tulip bubble" burst when tulip prices skyrocketed and then collapsed, bankrupting many investors.
- 19th Century – Stocks for Everyone. The Industrial Revolution made companies bigger and investing more accessible. The New York Stock Exchange (NYSE) and the London Stock Exchange became global financial hubs.
- 1929 – The Crash That Changed the World. In October 1929, the U.S. stock market crashed, triggering the Great Depression. After this, governments began regulating stock markets to prevent future crises.
- Technology and New Players. The 21st century brought online trading and crypto assets. Now, stocks are bought not only by Wall Street investors but also by ordinary people using mobile apps.
Key Questions
What are Stocks?
Stocks represent ownership shares in a company, giving holders the right to a portion of its profits and, in some cases, voting rights.
Why do stock prices change?Stock prices fluctuate based on company performance, market expectations, economic conditions, and investor sentiment.
Is there a simple bitcoin definition?Common stocks provide voting rights and dividends, while preferred stocks guarantee fixed dividends but usually don’t grant voting power.
Can stocks lose all their value?Yes, if a company goes bankrupt, its stock can become worthless.
How do dividends work?Some companies distribute a portion of their profits to shareholders as dividends, usually paid quarterly.
What are the risks of investing in stocks?Stocks can be volatile, and their value may drop due to market crashes, economic downturns, or poor company performance.
In 2013, one Berkshire Hathaway share cost over $150,000 because Warren Buffett never split the stock. Today, its price exceeds $500,000, making it one of the most expensive stocks in history!
Basics of Stocks
Stocks were originally created as a way for companies to raise capital, but over time, they became a primary investment tool. Today, they are purchased not only by large funds but also by ordinary people through brokerage apps.
- Stocks come in different types, and understanding their features helps investors make informed decisions:
- Common stocks – grant voting rights and a share in the companies profits.
- Preferred stocks – do not provide voting rights but guarantee fixed dividends.
- Blue-chip stocks – stocks of large, stable companies with a strong reputation.
- Penny stocks – cheap, high-risk shares that can either skyrocket or become worthless.
- How Is a Stock Price Determined? A stock’s price is driven by supply and demand in the market. It is influenced by a company's financial performance, economic conditions, news, and investor sentiment.
- Dividends: Passive Income for Shareholders. Some companies distribute a portion of their profits to shareholders in the form of dividends. These can be paid quarterly, annually, or irregularly, depending on the company’s policy.
- Risks and Investment Strategy. Investing in stocks comes with risks. Prices can drop sharply due to crises, news, or poor company management. To minimize risks, it is important to diversify a portfolio and follow a long-term strategy.
Why Do Companies Split Their Stocks?
A stock split is a process where a company divides its existing shares into multiple new ones, reducing the price per share while maintaining the overall market capitalization. This doesn’t change the company’s fundamental value but makes shares more accessible to investors and increases liquidity. Many well-known companies, such as Apple, Tesla, and Amazon, have conducted stock splits multiple times.
- Accessibility for Retail Investors When a stock price becomes too high, small investors may be left out. For example, before Tesla’s stock split in 2020, its shares cost over $2,000 each, making them unaffordable for many. After a 5-to-1 split, the price dropped, allowing more people to invest in the company.
- The lower the price per share, the easier it is to buy and sell. This leads to higher trading volume and makes the company more attractive to new investors. For instance, Apple executed a 4-to-1 stock split in 2020, and its shares became even more popular afterward.
- Psychological Effect Many investors perceive cheaper stocks as more attractive, even if the company’s actual value remains unchanged. A stock split can create the illusion of a "more affordable" investment, increasing demand. For example, after Amazon announced a stock split in 2022, its share price jumped by 6% in just a few days.
Although a stock split doesn’t make a company wealthier, it helps attract more investors and improves liquidity. It is a common strategy used even by the biggest corporations to make their shares more appealing to a wider audience.
A stock split doesn’t change a company’s real value, but it makes shares more affordable and attractive to investors. It is one of the ways to boost liquidity and attract new market participants.
How Do Stocks Work
Stocks represent shares of ownership in a company. When a person buys a stock, they become a co-owner of the business and gain the right to a portion of its profits. Companies issue stocks to raise capital for growth and expansion. These stocks are traded on stock exchanges, where their prices fluctuate based on demand, financial performance, and news.
Investors earn money from stocks in two main ways: through price appreciation and dividend payments. Stock prices can rise if a company performs well or fall if its financial condition worsens. Some companies distribute part of their profits to shareholders as dividends, while others reinvest them for future growth.
Key Principles of How Stocks Work:
- Initial Public Offering (IPO). When a company wants to raise money for expansion, it conducts an Initial Public Offering (IPO). This is the first time the company offers its shares to the public. After the IPO, stocks start trading on the exchange, and their price is determined by the market.
- Secondary Market After the IPO, company shares can be bought and sold on the stock exchange. Their value constantly changes based on supply and demand. Investors may speculate on stock prices, buy them for long-term holdings, or include them in diversified investment portfolios.
- Factors Influencing Stock Prices Stock prices are not fixed – they depend on multiple factors. Financial reports, economic events, company news, and overall investor sentiment can cause sharp price fluctuations. For example, negative news about a company may lead to a mass sell-off of its shares, while positive developments, such as strong quarterly earnings or major innovations, can drive prices higher.
- Not all companies pay dividends, but those that do regularly share a portion of their profits with shareholders. Dividends can be paid quarterly, annually, or irregularly, depending on the company’s strategy. Investors focused on stable income often choose companies with high dividend yields.
- Risks and Returns Investing in stocks can generate both profits and losses. Unlike bonds or savings accounts, stocks do not guarantee a return, and their prices can drop sharply due to economic crises, poor company management, or external factors. However, long-term investments in strong companies have historically provided high returns, making stocks an attractive option for investors.
Apple became the first company in history to reach a $1 trillion market capitalization. This happened in 2018, and since then, other giants like Microsoft and Amazon have also crossed this milestone.
During periods of extreme panic, stock exchanges can automatically halt trading to prevent a crash. For example, in March 2020, due to the market collapse caused by the pandemic, trading on Wall Street was halted four times in one week.
Key Question
How do stocks have value?
The value of a stock lies in its ability to generate income and provide ownership in a company. Investors can profit from stock price appreciation, receive dividends, or participate in company management if the stock grants voting rights. For some, stocks are a way to make quick profits, while for others, they are a long-term tool for preserving and growing wealth.
How to Get Stocks
Today, buying stocks has become easier thanks to digital platforms and brokerage services. However, aside from purchasing, there are other ways to obtain stocks, such as participating in investment programs or working for a company that offers stock incentives to employees.
Ways to Get Stocks
- The most common way is to open a brokerage account and buy stocks through an exchange. Popular platforms like eToro, Interactive Brokers, and Robinhood allow investors to purchase stocks even with small capital.
- Some investors buy stocks before a company goes public by participating in an Initial Public Offering (IPO). This can provide an opportunity to acquire shares at a lower price before they are traded on the open market.
- Many companies offer stocks to employees as bonuses or incentives. This is known as an Employee Stock Ownership Plan (ESOP) and allows workers to own a portion of the business they contribute to.
- If you already own stocks, you can automatically reinvest received dividends to buy additional shares without extra investment. This strategy helps grow capital in the long run.
- Some investment platforms, like Robinhood and Revolut, reward new users with free stocks for signing up or funding their accounts. Additionally, companies sometimes offer stocks as promotional gifts to encourage investment in their services.
The easiest way to buy stocks – the specialists at Targeted Investments LLC will guide you.
Key Question
What is the difference between stocks and other assets?
Stocks differ from other assets because they represent ownership in a company, and their value depends on its financial performance and market expectations. Unlike bonds, which provide fixed income, stocks can offer both dividends and capital growth but come with higher volatility. Real estate and commodities like gold are often considered safe-haven assets, whereas stocks are more susceptible to price fluctuations. Additionally, stocks are traded on exchanges and have high liquidity, while assets like real estate take more time to buy or sell. The choice between stocks and other assets depends on the investor’s goals, risk tolerance, and desired level of returns.
How to use Stocks
Stocks can serve not only as a way to earn money but also as a tool for long-term capital accumulation, inflation protection, and passive income. Depending on their strategy, investors use stocks for short-term speculation, portfolio diversification, or dividend income. Proper stock management helps minimize risks and maximize potential profits.
- Long-Term Investing: Buying shares of stable companies and holding them for years allows investors to grow their capital through price appreciation. This method is ideal for those who focus on long-term benefits and do not want to monitor the market daily.
- Trading and Speculation: Short-term stock trading on the exchange allows investors to profit from price fluctuations. Traders use various strategies, such as day trading or swing trading, to generate profits within a short period.
- Earning Passive Income Through Dividends: Some companies pay dividends—a portion of their profits distributed to shareholders on a regular basis. Dividend stocks allow investors to receive steady income without selling assets. There are several ways to use dividends:
- Dividend reinvestment – Use dividend payments to buy more shares, increasing capital over time.
- Receiving regular income – Utilize dividends as an additional source of earnings.
- Choosing high-dividend companies – Invest in stable companies that consistently pay dividends.
- Portfolio diversification – Spread investments across various dividend-paying companies to reduce risk.
- Taking advantage of tax benefits – In some countries, dividend income is subject to tax benefits, making this investment approach even more profitable.
Stocks can be used for long-term capital growth, active trading, or passive income through dividends. The key is to choose a strategy that aligns with your financial goals and risk tolerance.
Features of Trading Stocks with CFD Contracts?
What Are CFD Contracts? CFDs (Contracts for Difference) are derivative financial instruments that allow traders to speculate on stock price movements without actually owning the asset. Instead of buying or selling stocks, an investor enters into a contract with a broker to trade the difference between the opening and closing prices.
Trading with Leverage One of the key advantages of CFDs is the ability to trade with leverage. This allows traders to open positions larger than their initial deposit, increasing potential profits. However, leverage also raises risks, and losses can exceed the original capital.
Earning on a Falling Market CFDs allow investors not only to buy stocks (long position) but also to sell them without owning the asset (short position). This makes it possible to profit not only from rising prices but also from falling ones. For example, if a trader expects Tesla’s stock price to drop, they can open a short position and profit from the decline.
No Ownership of Stocks When trading CFDs, the investor does not become a shareholder of the company and does not receive dividends or voting rights. This makes CFD trading suitable for speculative strategies but less attractive for long-term investors seeking passive income.
Commissions and Spreads CFD trading usually involves spreads (the difference between the bid and ask price) and holding fees. Long-term trading can be costly due to swap fees—charges for carrying positions overnight. Therefore, CFDs are primarily suitable for short-term trading strategies.
Flexibility and Risks CFD trading provides access to a wide range of stocks without the need to own real assets. However, high risks associated with market volatility, leverage, and broker fees require careful capital management. Experience and strategy are the key factors for successful CFD trading.
Where Do Stocks Come From?
Companies issue stocks when they need to raise capital for growth or business expansion. This happens through an Initial Public Offering (IPO) when shares are first listed on the stock exchange and become available to investors. Later, additional shares may be issued, or they are traded on the secondary market, where private and institutional investors buy and sell them.
