Session 1 of 11
What you actually own when you buy a stock
When you buy a share of stock, you buy a small piece of a company. Not a lottery ticket, not a number on a screen. A piece of a business that sells things, pays people and, if it does well, earns a profit.
Owning shares in a big public company works the same way, just with millions of shares and a lot more bakeries. You usually get a vote on some company decisions, a claim on future profits, and a share of whatever the business is worth.
Two things follow from this. First, over years a stock price tends to follow how the business does. A company whose profits grow tends to become worth more, and one whose profits shrink tends to become worth less. Second, over days and weeks the price moves for many reasons that have nothing to do with the business. Those swings are noise more often than news.
If you buy shares with your own cash, the most you can lose is what you put in. The share can fall to zero, and some do. That is why the rest of this track spends as much time on risk as on picking.
The habit to build from session one: before you look at a price chart, ask what the business does and how it makes money. If you can’t explain that in two sentences, you are not ready to own it.
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