What Is a Stock?

Stocks are integral to almost any portfolio, regardless of age, financial goals, and risk tolerance. While the amount an individual should invest in stocks depends upon your age bracket and financial situation, the fact is that you should invest.

Stocks, explained

To put it simply, a stock is a security – a fancy word for a financial holding that an entity issues. It gives you partial ownership of said entity. You "measure" stocks in units called shares. The more shares you own, the more ownership you have in a company. More on this in a minute.

Companies issue new stocks as needed, such as to fund a new project or float the company through lean times. Selling more shares also dilutes ownership, which can impact shareholders who purchase equities that confer voting rights. Occasionally, a corporation may also issue a buyback for their outstanding shares (shares purchased by shareholders).

You typically trade (buy and sell) stocks on exchanges, such as the Nasdaq and New York Stock Exchange (NYSE). However, some companies may sell stocks in private transactions. A few also offer employee stock in their compensation packages.

Regardless of how a stock trades hands, there are laws that all transactions must follow. These laws prevent fraud, tax evasion, and other illegal practices that used to run rampant in the financial sector. The laws also exist to protect the rights of the stockholders and ensure that corporations follow best practices that benefit the shareholders as well as the company.

There are different types of stocks, too (which you can learn about here).

There are three main reasons an investor may purchase a stock:

  • To sell it for a capital gain (either ASAP or years down the line)
  • For the dividends
  • To take advantage of voting rights

What this means for you

As we mentioned above, companies issue stocks to build capital for new projects and asset acquisitions. Once a stock has been sold, the incoming capital can be used however the company deems fit.

On the buyer’s side, purchasing a stock confers partial ownership of the company into the hands of the shareholder. Depending on the type of stock, the shareholder may own rights to assets, profits, or voting power in the company. Exactly how much depends on how much of the company a stockholder owns.

Ownership is determined by dividing the number of shares owned by the number of shares the company issued. For instance, let’s say that AwesomeSauce Corp issues 1,000 shares of stock for the first time, and John Jingle buys 100 shares. John now owns 10% stock in the company – which means he gets 10% of the profits (in certain situations – more on that later). If the stock confers voting rights, John would also wield 10% of the influence in the vote.

However, buying stock does not mean that John actually owns the corporation itself. Perhaps the most accurate way to frame stock ownership is that a stockholder owns the shares they purchase (and whatever rights the shares grant them), while the issuing corporation owns the assets.

This distinction is important because of the idea of separation of ownership and control. This practice limits and separates liability on both sides of the transaction in the event of major decisions and events. Just as individual shareholders can’t access a company’s profits at will, so too can’t a corporation access their shareholder’s funds.

For instance, if a corporation goes belly-up, a judge cannot order the shareholders to empty their pockets and pay off the company’s debt. In the reverse, if Mr. John Jingle were to declare bankruptcy, he couldn’t claim 10% of the company’s assets to pay off his debts, either.

Related Qbits

Learn everything about Q.ai Investment Kits and how they help build wealth

Level up your investment game

In just 2 minutes, iQ will help you become the expert your friends go to for investing advice.

Level Up your Investment Game
Tryq Logo






Terms of Use

Form ADV




Fintech Breakthrough Award

Best Retail Investment Company

AI Breakthrough Award

Best Deep Learning Platform

AIBenzinga Global Fintech


Product Hunt’s Golden Kitty

Semi-Finalist – Fintech

Product Hunt

#1 Product of the Day

Product Hunt

#2 Product of the Week

Q.ai is the trade name of Quantalytics Holdings, LLC Quantalytics. Quantalytics offers automated financial advice tools through Quantalytics Investment Advisors, LLC (“QAI”), a SEC registered investment advisor. QIA’s Investment advisory services will be available only to residents of the United States. Disclosures concerning QIA’s investment advisory services are available on its Form ADV filed with the SEC. The parent company of ForbesMedia LLC, Forbes Global Media Holdings Inc. ("Forbes") has a material ownership interest in Quantalytics. Forbes does not give representation nor warranty with respect to the accuracy or completeness of the content on this website. The content on this website is for informational purposes only and does not constitute a comprehensive description of Q.ai`s investment advisory services. By using this website, you understand the information being presented is provided for informational purposes only and agree to our Terms of Use and Privacy Policy. QAI relies on information from various sources believed to be reliable, including clients and third parties, but cannot guarantee the accuracy and completeness of that information. Nothing in this communication should be construed as an offer, recommendation, or solicitation to buy or sell any security. No representation or warranty can be given with respect to the accuracy or completeness of the information, and is subject to updating, revision, and amendment. Additionally, QAI or its affiliates do not provide tax advice and investors are encouraged to consult with their personal tax advisors. All investing involves risk, including the possible loss of money you invest. Past performance doesn’t guarantee future performance. © 2023 Quantalytics Holdings, LLC. All Rights Reserved.

Copyright © 2023 Q.AI LLC. All rights reserved

We use cookies to provide you with the best experience and show you relevant advertising. Learn more.