A stock represents a fractional ownership of equity in a company, which means that investors own a claim on the company’s earnings and assets. This is different from a bond, which operates more like a loan that creditors make to companies in exchange for regular payments. Companies issue stocks to raise money and grow their businesses. Investors buy the shares with the hope that they’ll gain value over time and can sell them for a profit.

While the stock market can be volatile, historically it has offered investors a way to grow their wealth over the long term. Those willing to stick with the market over a long period of time, say 15 years, can often earn positive returns on their investments.

Investors typically buy and sell stock through an electronic marketplace known as a stock exchange, such as the New York Stock Exchange or NASDAQ. These markets allow investors to build a diverse portfolio of stocks from individual companies, as well as exchange-traded funds (ETFs), mutual funds and real estate investment trusts.

Most stocks are common stock, which entitles owners to vote at shareholder meetings and to receive dividends. However, some are preferred stocks, which don’t come with these rights and operate a little differently. Regardless of the type of stock they own, most investors want their stocks to increase in value over time and become worth more than the original price that they paid for them.

In addition to stock prices, investors also consider a company’s fundamentals when making decisions. Financial ratios such as price-to-earnings, return on equity and debt-to-capital are used to assess the health of a company’s business. Investors should take these ratios into account, along with a company’s market position and competitive advantage, to determine how much the stock is worth.

It’s also important to remember that even if the stock price of a particular company has increased, it’s still possible for the stock to lose value. That’s why it’s important to diversify your portfolio with stocks from a number of different companies and industries.

A stock’s price can also fluctuate for a variety of reasons, from market-wide volatility to company-specific issues such as a faulty product or news events. In some cases, a stock’s price may go up for no particular reason at all. The key to assessing a stock’s value is to figure out its intrinsic value, which refers to what it is actually worth. While it can take some time and effort to master this, investors can use several tools to help them determine a stock’s true value. Some of these tools include a stock’s price-to-earnings ratio, return on equity, debt-to-capital, quick ratio and enterprise value to EBIT. Using these tools can help investors find the best stocks for their investing strategy.