Introduction to Investing - What Are Stocks?

Issuing and selling shares of stock is a common method corporations use
to raise capital in order to carry out the goals of the company, such
as expansions and improvements, without borrowing large amounts of
money. Without the income generated by the sale of shares of stock,
many companies would not be able to come up with the cash to accomplish
these goals.

Sometimes corporations sell shares of stock simply because the
owners want to reduce their holdings in the company and generate cash
for personal use.

When you own stock, you actually own part of the company, and
the value of your shares goes up and down as the company's stock value
fluctuates. It's important to remember, though, that when stock prices
go down, you don't actually lose anything unless you sell the stock
while the price is lower than what you paid for it. As long as you hold
onto the stock, you can recoup any "paper" losses the next time the
stock price rebounds (assuming that it does).

Stock prices often have more to do with investors' perceptions
than with the actual financial standing of the company. Some Internet
stocks, for example, started trading at several hundred dollars per
share but then settled down into less than $100 per share.

Stocks don't offer a guaranteed return, so choose them carefully.

Each publicly traded stock is usually traded on just one of the
many US and international stock indexes. The best known index is the
Dow Jones Industrial Average (DJIA), but only 30 stocks are included on
this exchange. You could have investments in a hundreds of stocks and
not be directly affected by rises and falls in the Dow Jones, if your
stocks are traded on other exchanges.