Most people meet the stock market as a list of tickers and colored numbers that go up and down. That framing makes investing feel like guessing. The more useful framing is older and plainer: a share is a small piece of ownership in a business, and over long periods its value follows what that business earns.
When a company is public, its ownership is divided into shares. Owning one gives you a proportional claim on the company's profits, assets and votes. The price moves every second because buyers and sellers disagree about what those future profits are worth today, but the thing being priced is the business.
What to look at
- A share is a claim on future cash: the profits a company keeps, reinvests, or pays out as dividends and buybacks.
- Market capitalization = share price × shares outstanding. It is the market's price tag on the whole company.
- Shareholders are paid last. Suppliers, employees, lenders and tax come first; you own what is left over.
- Prices move on changes in expectations, not just on results. A company can report record profits and fall if investors expected more.
- Over years, price tends to follow per-share earnings and cash flow. Over weeks, it mostly follows sentiment and flows.
The shape of it
Market cap = Share price × Shares outstanding
An example
If a company has 1 billion shares at $50, the market values the whole business at $50 billion. If you own 100 shares, you own one ten-millionth of it, and of every dollar it earns.
Where people go wrong
A low share price does not mean a stock is cheap. A $5 stock with 20 billion shares is a $100 billion company. Compare companies by market cap and by what they earn, never by price per share.
Every lesson after this one is a way of answering a single question: what is this business likely to earn, and is the price I am paying reasonable for that? Keep the question in mind and the jargon becomes much easier to place.