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Stock Valuation and Stocks Explained
In 3 Minutes
What is a “share of stock”? (Simply known as a “stock” for short).
Basically, a stock is a certificate which proves that you own part of a company or corporation. Why would someone want to buy a share of stock? In theory, you want to own a company’s share of stock so that you can get paid a share of the company’s profits. This money is called DIVIDENDS.
Therefore, if a stock’s owner is expected to get paid a lot of dividends now and in the future, then the stock should have a high value. On the other hand, if a stock’s owner is expected to get paid only little dividends now and in the future, the stock should have a low value. In theory, a stock’s value should go up if it will have more dividends in the future, and this should increase a stock’s price.In reality however, a stock’s theoretical value is often different from a stock’s price.