What are stocks?
Let’s say you really like McDonald’s and you want to be one of the many owners of The McDonald’s Corporation, you buy their stock MCD from the New York Stock Exchange (NYSE).
Remember how you received a certificate when you graduated from kindergarten, which was proof you finished all your lessons? Well, when you buy stock from McDonald’s, they give you what is called a stock certificate which proves you are the owner of their company.
What do I get from buying stocks?
This is the fun part. We only want to have a share (be a small owner) in a company that we think will make money. In other words, we only buy stocks from companies that are doing well and are unlikely to close down.
For kids 9 years old and above:
Let’s just say you bought 100 stocks when 1 stock cost $1. You had spent $100 on MCD.
Ten months down the road, 1 unit of stock is valued at $1.30. If you decide to sell your shares now, you would receive $130, which is $30 in addition to your cost of $100.
You made a profit of $30 from investing in MCD.
What you need to do as a shareholder:
A shareholder is a stockholder.
When you put your money in a company, in the above case $100 on MCD, you need to know how well the company is doing. You should at least check on the company’s earnings every financial year, or follow the news about potential change in management as sometimes people lose confidence for a company’s future just by looking at who is in charge.
If you sense that The McDonald’s Corporation is going to do even better, you can consider investing more money into MCD.
If you sense that the price of MCD stock will drop, you may consider selling your shares before you make much more losses.
However, sometimes you do not need to sell. It really depends on your gut feel as some companies can bounce right back, in which case, buying more stock at this point will be wise.
CLICK HERE TO DOWNLOAD “My First Stock” and “BUY OR SELL” worksheets
so you understand the rationale behind the decisions made when investing.