What is a stock?

In this post “what is a stock?” I am going to define what a stock is and I’ll explain how its price moves.

What is a stock?

Think of the company as an apple. A share of stock is simply taking a bite.

A stock is a unit of ownership in a company. Let’s say you start a company all by yourself. You own 100% of the shares. Next let’s say you need money so you split your company into 100 pieces (shares) and sell 25 shares on the stock market. You now own 75% of the company, and people on the stock market owns the other 25%. So you now collect 75 cents on every dollar the company earns and the people in the stock market collect the other 25 cents (via dividends).

How do Stock Prices Move?

Think of a market where the apple is being sold. Buyers and sellers have a different perception of how good the apple tastes. So a lot of haggling occurs.

The reason why stock prices fluctuate is that different people have different perceptions of how much your company is worth. For example: Mary might think your company is worth 50 dollars a share, and Tony might think it’s worth 100 dollars a share.

If the price is currently 75 dollars a share, Tony will buy as many shares as he can because in the future he thinks he will be able to resell the shares for 100 dollars for a 25 dollars per share profit. All that buying will cause the stock price to move up (the price will continue to move up as long as someone is willing to pay for it). If someone is willing to buy a product from you for 80 dollars, why would you ever sell it to them for 75 dollars?

In this example Mary would sell any shares she has and wouldn’t buy any more. That selling pressure will drive the price down. If no one wants a product the product gets discounted down to incentivize someone to buy. The battle between the upward and downward forces explains the price fluctuation within the stock market.

Fee Structure

Rate Assets Under Management
1.44% Below $125,000
1.00% Between $125,000 and $750,000
.85% Between $750,000 and $1,250,000
.80% Between $1,250,000 and $1,750,000
.75% Between $1,750,000 and $2,500,000
.70% Between $2,500,000 and $3,250,000
.65% Between $3,250,000 and $4,250,000
.60% Above $4,250,000

A single rate is applied to the entire account. So a person with a $750,000.01 account pays less than a person with a $750,000 account. I will waive personal tax return fees for accounts over $1 million. For accounts that are above $5,250,000, we’ll need to discuss a custom rate.

As I’m writing these to help my readers, I would be very appreciative of any input in regards to what I should write next. If you want me to write about a particular topic, please contact me. Please contact me if you would like to submit a post to my blog.

If anything that I mentioned above interests you, please consider downloading my free e-book. The book contains my thoughts on investment management and some information that I think everyone should know. You can also download it below.

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Questions for the comments

Did my explanation make sense? Do you agree or disagree with what I said?

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