What Is A Stock?
“The only thing you can predict about the stock market
is that it’s utterly unpredictable. It’s going
to go up and it’s going to go down. Historically, the
market has gone up more than it has gone down, and that’s
what you’re counting on.”
- Ilyce R. Glink, author of
100 Questions You Should Ask About Your Personal Finances
Stocks represent part ownership in a public corporation.
It’s as if you buy a piece of the company--if it makes
money, so do you. By the same token, if the company you invest
in falters or fails altogether, you could lose some or all
of your investment.
That’s why it’s so important to know something
about the companies in which you buy stock. You should know
its products or services, its market, and whether or not it
has a sound balance sheet, positive cash flow, and competent
management. You should also consider what analysts predict
in earnings for the company’s future.
Because stock prices tend to fluctuate more sharply--both
up and down--than other types of asset classes, stocks are
considered more risky than cash or bonds. However, history
has proven over and over again that stocks outperform every
other type of investment, as well as inflation.
If you do your homework, choose well, and patiently ride
out market volatility for 5-10 years or more, chances are
very good that your stock portfolio choices will reward you
with higher returns than anything else in which you might
have invested.
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What
is a Stock?
