What's a Stock?

There's perhaps no more basic question in the world of stock market investing than "What's a stock?" Yet many people don't know the answer.

A share of stock represents actual ownership in a company. Consider this very simplified example: Imagine that Home Surgery Kits, Inc. (ticker: OUCHH) has 10,000 shares outstanding -- in existence. If you own 100 shares of OUCHH, you own 1% of the company. (Divide 10,000 by 100 and you'll get 100. So, you own 1/100th of the firm.)

Ownership entitles you to share in the company's earnings. These are sometimes partially paid out to shareholders in the form of dividends. Instead of or in addition to dividends, earnings may also be reinvested into the company to fuel growth and generate more value.

With most shares of common stock, along with ownership comes voting rights. That's right -- when a company you hold shares in has a big decision to make, it will ask you what you think. Individual investors typically buy "common stock" in a company. Another form of stock is "preferred," which usually carries some extra conditions and often excludes voting rights.

Learn more basics about stocks in our Investing Basics area. Also, check out our Mutual Funds area, and zero in on our index fund information there. To learn about investing Foolishly, visit our Fool's School.