3 – L1 01 Stocks V2

Let’s first define the terms Equity, Stocks and Shares. What does it mean when an investor buys stocks. When you get a new job and the company pays you in shares what does that mean? Equity, is the value of a company’s assets minus it’s liabilities, is the net value of the company after counting for everything in the company owes. Such as debt, payments to suppliers, or employee wages. A company’s equity, is divided into stock certificates that investors can buy. These can be called shares of the company, or stock in the company. Stock and shares pretty much refer to the same concept. When you say you own stock, people know you’re referring to shares in one or more companies. When you say you own shares, you normally specify shares, any specific company. So, when an investors purchase stocks, or if employees receive shares from their employers, they’re receiving partial ownership of a company’s equity. Now, let’s say you’re trying to follow how well the overall markets are doing. So, you look at a bunch of stocks and you may see that Google was down yesterday but up today, while IBM was up yesterday and then down today, and Amazon was up both yesterday and today. How do you consolidate all this information into a single number in a way that’s meaningful? As you’ll see next, we can use an index to help us track not only these companies, but also hundreds and even thousands of companies using a single number.

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