The financial industry is a big and complicated place full of many terms that people may not understand. One term you’ve probably heard is stock, which represents ownership shares in a company. Companies issue stocks to generate money and share it with investors. The type of stock you have determines whether you can vote at shareholder meetings, receive dividends, and get your money back if the business fails. It also affects your potential for growth. You can buy new or previously issued stocks through a broker, directly from a company (sometimes reserved for employees or existing shareholders), or via a retirement account transaction. You can also trade them on a stock exchange, which is typically reserved for large investors.

The value of a stock is determined by a combination of internal and external factors. Internal factors include predictions of future cash flows and profits, which are considered part of the intrinsic value of a company. However, a stock’s value is ultimately based on what other investors are willing to pay for it. This is called market criteria, and it’s important to keep in mind when analyzing a stock.

In addition to intrinsic and market criteria, a company’s performance is affected by its competitors and the economy. For example, if one of its top rivals launches an exciting new product that threatens the company’s profits, its shares will likely fall. The same goes for a strong economic recovery or a recession, which can cause the fortunes of companies in different sectors to rise or fall.

If a company has been around for a long time, it has likely built up a good reputation and is a stable investment. It is also likely to have intangible assets, such as a defensible economic moat, loyal customer base, and brand recognition, which can increase its value. It can also benefit from a low switching cost, which means that customers are less likely to leave it for a competitor even if the price of its products or services increases.

You can diversify your portfolio by buying a mix of stocks in various industries and geographies, as well as through different types of shares. For example, you can buy common stock that gives you voting rights and capital appreciation potential, or preferred stock that doesn’t give you those benefits but does offer a payout in the event of a bankruptcy. You can also invest in mutual funds or exchange-traded funds to simplify your investing.

It’s helpful to understand how to read a stock chart, which is a graph that shows the high, low, and closing prices of a stock over a period of time. You can also use the information on a chart to determine when it might be a good idea to buy or sell. Finally, you can keep up with stock market news to stay informed about trends that may impact your investment strategy. This is especially important when it comes to market cycles, such as bear and bull markets.