A stock is an ownership share in a business. The value of a stock fluctuates on the market, up and down, based on how well (or poorly) a company is doing over time. When a business wants to raise money, it issues shares of its stock for sale to investors. A person who buys stocks gets a percentage of the company, and the number of shares owned by a shareholder represents a fraction of the company’s total value, called its market capitalization. Shares of stock can be traded on a public market, which is typically represented by a major exchange like Nasdaq or the New York Stock Exchange. Investors can also buy and sell stock through a brokerage account, which is an arrangement between an investor and a financial institution that facilitates trading of investments.

When a company’s shareholders receive dividends, they get a small portion of the money that the company has made since its last earnings report. This is one way that businesses reward their shareholders for investing in them, and it is often the source of most short-term stock price movements, as shareholders try to predict whether a dividend will be paid or not.

Buying and selling individual stocks requires some research and forethought. Investors need to understand how a business makes its money, the demand for its products or services, and how talented and experienced managers are running the company. Investors also need to make sure that the business is positioned for long-term success and that it has the resources and capability to fulfill its goals.

In addition to evaluating companies individually, stocks can be grouped together by sector. There are many different ways to do this, but most include categories like technology, health care, and energy. As a general rule, stocks in the same sector tend to react in similar ways to economic conditions, so it’s important to diversify your stock portfolio by including some stocks from different sectors.

When a stock is trading at a price above its intrinsic value, it’s considered overvalued. There are many reasons for this, including problems with the company’s operations, declining demand for its products or services, and bad news about the economy. One of the most famous approaches to stock valuation is a formula created by Benjamin Graham, which uses a company’s book value per share and earnings per share to calculate its intrinsic value.

As an investment vehicle, stocks offer the potential for higher returns than other investment types. But they can also have a greater degree of risk than other investments. To minimize risk, it’s best to invest in a diversified portfolio that includes stocks, bonds, and cash, and to build your wealth slowly over time. A comprehensive financial plan can help you develop your investment horizon and decide how much risk to take in pursuit of returns. A good broker can also guide you through the process of establishing an investment strategy and choosing investments, and may even offer commission-free ETFs that can help you start investing at lower cost.