What does it mean to buy stock in a company? Buying stock in a publicly traded company is becoming a part owner in that company. The most popular type of stock available to investors is called "common stock".
Common stock ownership comes with 2 main benefits:
1) For every share you own, you are entitled to that many shares of the profits.
2) You have the right to vote for the Board of Directors and some other matters the company may put to a vote with the shareholders at the annual shareholders meeting.
Many people have the idea that buying and selling stock is gambling and something to be avoided. When you hear about stocks on the nightly news, they are talking about common shares. A company sells shares of ownership in the form of stock to investors to raise money for the business. The owners of these shares can hold on to these shares in hopes of benefiting from the success of the business or they can sell their shares to other investors on a stock exchange such as the New York Stock Exchange using a stockbroker. The price of stock is dictated by the willingness of the buyer to agree to the price for the shares. The price to is also based on the financial health of the company.
Investors are rewarded in 2 ways for their investment in the company:
1) If the company is profitable, they will pay a portion of the profits in the form of a dividend to the investors, usually quarterly (every three months).
2) The investors can also make money by selling their shares to another investor for more than they paid for the shares. This is called a "capital gain", if you sell your shares for less than what you paid for them, it is called a "capital loss".
When you own shares in a company like Wal-Mart or Coca-Cola you are entitled to a share of the quarterly profits. However, they may not issue a dividend to the investors, because they may want to use all of the profits to grow the business, which hopefully raises the price of the stock. Not all companies are profitable and price of the stock may go down as a result.
Investing in stocks is risky, however, over the long run investing in profitable companies with good growth in revenue, will usually yield profits for the investor in the form of dividends or when it is time to sell the shares in the form of capital gains.