Module 2 of 8 12 min
Stocks
Owning a piece of a company — and why stock prices move.
Course lessons
Step 1
The lesson
A stock (or share) is a small piece of ownership in a company. If a company has 1 million shares and you own 100, you own 0.01% of it.
Companies sell shares to raise money to grow. After that, investors buy and sell shares with each other on stock exchanges, like the New York Stock Exchange and Nasdaq.
You can make money from a stock in two ways: the price rises, or the company pays dividends — a share of its profits paid to owners. Many companies don't pay dividends and reinvest profits instead.
Why do prices move? Mostly because of expectations about future profits. News, interest rates, the economy, and investor mood all shift those expectations. In the short run, prices can swing a lot for reasons that have little to do with the business itself.
Key term
Market capitalization
A company's total stock market value: share price × number of shares. It's how people compare the size of public companies.
Step 2
See it
A company sells shares to raise money. Investors then trade those shares on an exchange. The price moves with expectations about future profits. Owners can earn returns through price increases and dividends.
Company sells shares
To raise money to grow
Investors trade shares
On a stock exchange
Price moves
With expected future profits
Price goes up or down
Gain or loss when you sell
Dividends
Some companies share profits
Step 3
Real-world example
Why a stock dropped on good news
A hypothetical company, Orbit Snacks, reports that profits grew 10% this year. The stock price falls 8% the next day. How?
Investors had expected 20% growth. The price already reflected those hopes. Real growth was good — but worse than expected — so the price adjusted down.
Lesson: stock prices react to the gap between results and expectations, not just whether news is "good" or "bad." That's one reason short-term price moves are so hard to predict.
Step 4
Knowledge check
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 5
Summary
A stock is a piece of ownership in a company. Shares trade on exchanges, and prices move with expectations about future profits. Returns come from price changes and sometimes dividends. Any single company can fail, so owning just one is a big bet.
Step 6
What you should remember
- Stock = ownership in a company.
- Returns come from price changes and (sometimes) dividends.
- Prices move on expectations, not just results.
- Market cap = share price × shares outstanding.
- One company is a concentrated risk.
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