The Facts

• The stock market refers to all the companies listed on a public exchange such as the American Stock Exchange or the New York Stock Exchange. Beginning investors sometimes confuse markets with the Dow industrial average, which is an average of 30 large corporations listed on the market. When you buy shares in a company, you purchase a "share" of the company's earnings--also called equity. Companies put their equity up for sale in the form of stock to raise money for future expansion.
  
  

Type

• The two major types of shares are voting and nonvoting. When a company issues shares, it is said to go "public," which means that it is no longer exclusively privately owned. Shareholders are given rights when they invest in a company. Usually, these rights involve access to company balance sheets and the ability to vote on major decisions such as approving a financial plan or hiring a new board member. Nonvoting stock does not give a shareholder the right to vote on these decisions.
  
  

Benefits

• Owning shares of stock in a company can have many benefits, but the main one is capital gain. If the company has good earnings and grows, its equity will grow also, and the share price will go up. For example, if you buy 50 shares of company XYZ for $5 a share, and the company has a very profitable quarter, the shares will likely rise. If they go up 10 percent, your initial investment of $250 is now worth $275.
  A second benefit of some stock is dividends. Many large companies with stable earnings entice shareholders with dividends. Dividends are like interest payments on your capital. They can be as low as 1 cent a share or as high as $1.
  
  

Risk Factors

• Shares can also lose value if a company underperforms. The risk is usually proportional to the perceived reward. Many new investors make the mistake of investing in market trends instead of really investigating a company's balance sheet and value.
  
  

Expert Insight

• "I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."
  --Warren Buffett
  Those words by one of the most successful investors of all time are often repeated but seldom heeded. It is hard for many stock buyers to tune out the continual noise and focus on fundamentals. Markets are governed by emotion because people make the decisions, so successful trades (investments) require research, diligence and a cool head.