If you own a share of stock in a company, it means that you own an economic interest in the underlying business. But there's more to the story than that. Here's a rundown of what a share of stock is, and what investors should know about how shares of stock work.
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What is it?
What is a share of stock in a company?
You'll often hear the words "shares" and "stocks" used interchangeably, but there is a difference. The term stock is used to express equity ownership in a business. A stock represents a piece of ownership in a corporation.
On the other hand, a share of stock is aunit of ownership in the business. The number of shares determines how big of a piece of ownership in a business you have. If a company has 100,000 outstanding shares of stock and you own 1,000, you have a 1% equity ownership stake in the company's business.
If a company chooses to pay a dividend, it will be divided proportionally based on the total number of shares that exist. If stock owners have voting rights in corporate affairs, the voting rights given to shareholders are typically dependent on the number of shares you own.
Taking the terminology a step further, ashareholder is an individual who owns shares of stock in a company. This term is often (correctly) used interchangeably with stockholder.
The value of a share of stock depends on several factors, such as the sales, growth, or profitability (or lack thereof) of the underlying business, as well as overall market factors such as the health of the economy, interest rate conditions, and more.
Public vs. Private
Public versus private companies
While the general idea is the same in regard to equity in a business, there are some stocks that trade on the public stock markets and some that don't.
Publicly traded stocks are the most visible. These are companies like Microsoft (MSFT -1.23%) and Coca-Cola (KO 0.2%) whose shares can be bought on major stock exchanges by anyone with a funded U.S. brokerage account. But it's important to understand that privately owned companies have shares of stock as well -- they are just not available for purchase by everyday investors. The process a private company uses to become a publicly traded company, and therefore allow its shares to be owned by everyday investors, is known as an initial public offering, or IPO.
Types
Different types of stock
Technically speaking, there are two different types of shares of stock that you could buy -- common stock and preferred stock.
- Common stock: Common stock is what most people think of when they hear the word "stock." Common stock represents an equity ownership interest in a business, as discussed earlier. It's also worth mentioning that there can be different classes of common stock, even among the same company. For example, Alphabet (GOOGL -3.5%)(GOOG -3.37%) has two different classes of publicly traded stock. The difference? One has voting rights when it comes to electing board members and other shareholder votes, and the other doesn't.
- Preferred stock: Preferred stocks work quite differently -- they are more like fixed-income instruments, with a predetermined dividend amount and par value. Unlike with a common stock, preferred stocks don't represent a proportional share of a company's earnings -- no matter what a company earns, preferred shareholders get the same dividend and the intrinsic (par) value of the shares remains the same. Preferred shareholders don't have voting rights, while common shareholders generally do. Preferred dividends are generally superior to common dividends in terms of priority -- if a company is struggling financially, preferred stockholders must get paid before any common shareholders are. Preferred shareholders are higher in priority when it comes to claims on a company's assets in bankruptcy situations.
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Fractional Shares
Do you have to buy a whole share of stock?
Shares of stock are the smallest units of ownership in a company, but they aren't necessarily the smallest units that individual investors can own. In recent years, many brokerages have started to offer fractional shares to their clients, which can especially come in handy with high-priced stocks like Amazon.com (AMZN 0.38%). Without getting too technical, the key point to know is that the brokerage is still buying whole shares, but is essentially selling bits and pieces to its clients. In other words, if three investors wanted to buy 0.1, 0.4, and 0.5 shares of Amazon, respectively, the brokerage would buy one share and allocate it among the investors' accounts, dividing dividends and economic rights proportionally.
The takeaway is that if your brokerage offers fractional share investing, you don't necessarily need to buy a whole share of a stock to get an equity interest in the company.
Learn more about shares
- What are outstanding shares?
- Stock vs. Share: What's the difference?
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Frankel has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
FAQs
Let's say that you start with the time frame in mind, hoping an investment will double in value over the next 10 years. Applying the Rule of 72, you simply divide 72 by 10. This says the investment will need to go up 7.2% annually to double in 10 years. You could also start with your expected rate of return in mind.
Is one share of stock enough? ›
While purchasing a single share isn't advisable, if an investor would like to purchase one share, they should try to place a limit order for a greater chance of capital gains that offset the brokerage fees.
What AI stock is Motley Fool recommending? ›
The Motley Fool has positions in and recommends Qualcomm.
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Since launching in 2002, the Motley Fool Stock Advisor has delivered an average stock return of 644%*, significantly outperforming the S&P 500's 149% return in the same timeframe.
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It states that you can comfortably withdraw 4% of your savings in your first year of retirement and adjust that amount for inflation for every subsequent year without risking running out of money for at least 30 years.
What is the rule of 69 in investing? ›
The Rule of 69 tells you how long it takes to double your money with different returns. 🚀 The formula is simple: 69 divided by your investment's annual return rate.
How much money do I need to invest to make $1000 a month? ›
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How many shares should a beginner buy? ›
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.
Is 10 shares of a stock enough? ›
The number of shares you should buy depends on the price of the stock and how much money you are willing to invest. For example, if a stock is worth $10 and you have a $10,000 portfolio, a good number of shares would be between 20 to 100 depending on your risk tolerance.
What are the 10 best stocks to buy according to Motley Fool? ›
See the 10 stocks
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies.
The Motley Fool suggests building a portfolio of 25 or more stocks, which should give you a diversified collection of companies spanning different sectors and sizes. In order to start our members off on the right path, our investing teams have created The Motley Fool Starter Kit!
What is the smartest stock to buy? ›
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| Company (ticker) | Analysts' consensus recommendation score | Analysts' consensus recommendation |
|---|
| Amazon.com (AMZN) | 1.29 | Strong Buy |
| Nvidia (NVDA) | 1.33 | Strong Buy |
| Microsoft (MSFT) | 1.33 | Strong Buy |
| Bio-Techne (TECH) | 1.39 | Strong Buy |
21 more rowsSince 1993, The Motley Fool has been a trusted source of investment and financial advice to millions of members. Read their reviews showcasing our commitment to making the world smarter, happier, and richer. We are dedicated to customer feedback in order to provide the best services possible.
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For investors looking for stock ideas and actionable guidance, Motley Fool is likely worth the reasonable annual fees. The stock research alone can pay for the membership cost if you invest in just a couple successful picks. However, more advanced investors doing their own analysis may not find sufficient value-add.
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What is the Rule of 72 in simple terms? ›
Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
What is the Rule of 72 in trading? ›
The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.
What is the Rule of 72 Warren Buffett? ›
The Rule of 72:
This rule is determined by dividing 72 by the annual rate of return. For instance, if you anticipate a 10% annual return on your investment, it would take roughly 7.2 years (72 divided by 10) for your initial investment to double.
Does the Rule of 72 really work? ›
The Rule of 72 is reasonably accurate for low rates of return. The chart below compares the numbers given by the Rule of 72 and the actual number of years it takes an investment to double. Notice that although it gives an estimate, the Rule of 72 is less precise as rates of return increase.
