Broken Broker

What are stocks?

 Stocks, in their simplest definition, are tiny pieces of a company. Stock owners are guaranteed a share in the companies fortunes (or misfortunes) and must pay to obtain these pieces of a company. If a single person or entity owns a majority of these stocks, they control the company. The more stocks that a company has, the smaller amount of control that stock has over the entire company. Additionally, if a company has a very good year it sometimes decides to give some of the money it made back to the shareholders, called a dividend. The more stocks that a company has the smaller amount of money will be returned to a shareholder, when compared to a smaller company. Here’s an example:

Company A has 100 shares outstanding (”total number available in the world”). They decide after a very profitable year that they will return $1000 to shareholders as a reward for holding on to their stock and having faith in their company.  The dividend for Company A is $10/share. If you owned 2 shares of Company A, you would now be $20 richer (minus taxes). Wahoo!

 Company B has 100,000 shares outstanding. They too have a profitable year and decide to give a dividend; however, they had a much more profitable year as they are a much larger company. They decide they will split $500,000 among shareholders, giving a dividend of $5 per share.

 Here it is easy to see that even though Company A is smaller than Company B, there is a difference in ownership. Owning a stock in a small company will give you more influence and rewards than owning stock in a large company, though with small companies there is always risk they will make little or no money for the stockholder. The idea to come away with in this article is that owning a stock is a small piece of a company and that the size of the company will influence the characteristics of that stock.

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