Essentially, stock is a representation of ownership in a business. Granted it generally takes a ton of stock, quite literally, in order to have any significant ownership in any given business but ownership is what it represents. It means that you have a valid interest in the company and a legitimate claim to a portion of the company’s holdings or profits. Owning a share of stock makes you a part owner of the business in which you own the stock. Ever wanted to own a Harley? How about owning a share of their stock? It’s probably cheaper and with gasoline prices hitting the roof lately might make you enough extra money to buy your own Harley to ride as well as a taste of ownership in the company.
Any company that is openly traded on the various stock exchanges can be purchased (at least partially) through stocks. Some cost more per share than others and some are much more stable than others. It’s not really the best plan from a business point of view to purchase stocks simply because you like a company’s products though I would like to think that there is something good about the company and its financial future if they are putting out products that you believe in.
When purchasing stocks for the purpose of profits you need to see the big picture though and not simply focus on whether you like the company or their products. This is a financial decision that can bring you big money, some money, or cost you money in the end. If you earn big returns then it is money well spent, if you lose money then lets hope that it was a learning experience at the very least. A few things to look at when selecting stocks include the following.
1) History. There is a lot that can be learned from a company’s history. Does it treat its employees well, has it experienced ups and downs along the way and came out smiling, has it had its shares of upheavals and still managed to come out ahead? You want to invest in a company that has a history of overcoming adversity when possible.
2) Current performance. You don’t want to linger in the past however as the present can tell a lot about companies too. Owners and founders die only to be replaced by boards who have profit in mind but do very little to instill the same loyalty from buyers that previous owners managed to do. You want to avoid these companies as they could be on their way to a few turbulent times ahead.
3) Forecasts and projections. While these are all very speculative you can judge how well a company has met these forecasts in the past in order to predict how it will deal with the future this time. If you feel good about the financial future of a company and want to be along for the ride, perhaps the company is worth the risk.
There are many reasons to purchase a great stock but the most important would be a company that produces a product you believe in that treats its staff well and provides an excellent working environment for all. It is much easier to expect great things from company that treats its employees well than one that does not.