What Are Stocks and Why Own Them?

Stock volatility is once again in the news and there are plenty of people who are saying that you, the investor, should not own stocks. We respectfully disagree.

So What is A Stock?

Let’s start by first better defining what we are going to discuss – stocks. A stock is basically a piece of paper stating that you own a share of a company. But what do you really own? Let’s take the company Apple (AAPL) as an example. If you buy Apple stock, this does not mean that you own just about anything Apple related. Instead, a stock states that you own a piece of a company’s profit.

Now, What is Volatility?

Volatility is in its’ most basic form, the fluctuation of the share price of a stock. Greg gives a great example using Apple stock to demonstrate how volatility can be influenced by investors competing for profit. But the truth is, stock volatility is no simple matter. In fact, investors aren’t just buying today’s profits. People want to buy today’s profits, tomorrow’s profits, next year’s profits etc. Figuring out what the future profits will be, takes a lot more skill and analysis, but the concept is still the same; today’s stock price is influenced by the perceived profits the company will hopefully make in the future.

It’s important to keep in mind that volatility is inevitable. People are emotional, which can and will lead to downturns in the market. However, when the market dips it’s important to remember that it’s only temporary. If we look at the long-term average of stocks, they’re still up. If you truly want to accomplish your financial goals and make a profit it is crucial that you invest in stocks over the long run.