Owning a Company Without Having to Work There
Stocks are a tiny slice of ownership in a public company.
For example, let's say you can buy one share of Google for a little over $550. If Google has 680 million shares outstanding, that means the company's ownership is divided up into that many tiny slices…or stocks.
To buy a share in Google, you'd check the price quote for the stock online by typing in GOOG (that's the stock ticker symbol or short form of the company name used for trading) and hop over to an online trading account at a broker like E*Trade. You'd pony up the $550 and pay the commission. Once that goes through, you own a tiny, tiny (did we mention it's tiny?) bit of Google.
Does it even make sense to own 1/680,000,000th of a company?
Yes, yes it does.
Google is a huge company, and your stock will likely increase in value with time as the company grows. If Google launches something cool (a mind-reading robot?), you'll see the stock jump up very fast as rich people everywhere scramble to buy. More likely, you'll see your investment grow slowly over time. Either way, you win.
Dolla Dolla Stocks
There are two basic ways to make money with stocks:
Let's say a company does really well. What do they do?
Well, they might throw a party, brag a little, and hire someone to make balloon animals for all the staff (depends on the company). But they probably also pay out dividends to their stockholders. Companies can either pay out dividends as cash or as extra stocks. The amount of cash you get from your stocks will depend on how many stocks you own and how well the company is doing (which decides how much the company is handing over to investors).
Let's say that you buy that stock in Google and they do come up with that amazing mind-reading robot. Everyone wants to buy Google stock now, and because there's only so much GOOG joy to go around, the price of the stock goes up as investors are willing to pay more to get their grubby mitts on the shares.
You sell yours while the price is high. After paying the commission and taxes, you may have made a tidy little profit. Of course, if you get out at the wrong time, you'll be able to see all the money you would have made if you had stayed in the game a little longer.