Stocks — Owning a Piece of a Company

A stock (equity) represents ownership in a corporation. Shareholders own a fraction of the company's assets and earnings.

How you make money with stocks:

Capital gains — stock price increases; you sell for more than you paid

Dividends — company distributes a portion of earnings to shareholders

Key metrics:

P/E ratio — Price / Earnings; how much investors pay per dollar of earnings. High P/E = expensive or high growth expectations. Average S&P 500 P/E: ~16–18.

Market cap — share price × shares outstanding. Large cap > $10B, Mid cap $2–10B, Small cap < $2B.

EPS (Earnings Per Share) — net income ÷ shares outstanding

Dividend yield — annual dividend ÷ stock price

Risk levels:

Individual stocks — high risk (company can fail)

Sector ETFs — moderate risk

Total market index funds — lower risk (diversified)

Stock market volatility: The market drops 10%+ (correction) on average once per year. Drops 20%+ (bear market) every 3–5 years. Long-term holders recover and profit. Panic sellers lock in losses.

Reference:

Wikipedia: Stock

https://en.wikipedia.org/wiki/Stock