A share of stock is your claim on a company’s assets and earnings. While stocks generally have a long history of high returns, they do come with risk and may lose value over time. In a legal sense, shares of stock represent a portion of a company’s net realizable asset value – the amount in cash that would be realized after all liquidations and liabilities are satisfied.

Companies sell stock to raise funds, which they can use for a variety of purposes. They can invest in new products or business lines, expand their operations or pay off debts. Investors buy shares in the hopes that a company will grow and generate increasing dividends, which are payments from the company to shareholders out of its profits.

When companies sell shares to the public, they’re called initial public offerings or IPOs. Investment banks manage the process and help companies choose what price to offer their shares at in order to maximize their returns. Then, once the IPO is public, investors can trade the shares with each other on the exchanges.

A company’s stock price can be affected by a number of factors, including its profitability and industry trends. To assess a stock’s value, you should compare it to the performance of other stocks and markets in general, as well as its own historical returns. It’s also important to look at qualitative aspects of a company, like its defensible economic moat, network effects and brand recognition.

The price of a stock can also fluctuate because of supply and demand. For example, if investors want to buy more of one particular stock, they may increase their bids for it, which can drive the price up. Likewise, if there are more sellers than buyers, the price of the stock can decline. To balance this, some exchanges rely on professional traders to maintain continuous bids and offers so that a motivated buyer and seller can always find each other.

In addition, stock prices can also be influenced by the market’s perception of how much the company is worth. For example, a company that has an intangible asset like a patent or a monopoly can command higher prices because it’s protected from competition and has a powerful advantage over its peers.

Lastly, it’s important to understand how a company’s stock is performing in relation to its industry. If a company is outperforming the industry, but underperforming the overall market, this could be a warning sign. To avoid this, you should evaluate your portfolio on a regular basis and keep up to date with news and updates from the companies you’re invested in. By taking this approach, you’ll be able to make informed decisions when it comes to buying and selling stocks. The goal is to achieve a higher return on your investments than you’d get from other assets, such as bonds or real estate. A good way to do this is by investing in a diverse portfolio of stocks.