So Many Shoes, So Little Money – Blog

More Stocks

August 25th, 2009

When you a buy stock you are buying a piece of ownership in a company. What does it mean to be a partial owner? What, besides getting the right to brag to your friends that you own a piece of a company, do you have—or get, depending on your attitude—to do?

Well since you are a shareholder, you own a right to everything the company owns. The more shares of stock you own, the more of the company you own. You actually own a slice of all the company’s assets. An asset is anything the company owns that has commercial value. Think of an asset this way: Your personal assets include anything you own which you can sell on eBay. A company’s assets include things like desks, chairs, computers, contracts for business, sometimes the building they are in. Obviously, some things a company owns have more value than others.

As a shareholder (a person who owns stock), you also have the right to your share—hence the name—of the company’s earnings (the money the company makes, its profits), as well as the right to vote at the company’s annual meeting on the board of directors. Once a year, companies hold meetings to review their performance over the previous year, discuss the upcoming year and to elect the people who run the company. One share of stock equals one vote. What you don’t have is the right to run the company, at least day-to-day. Instead, you get to help decide—along with all of the other shareholders—who will run it on a daily basis.

The importance of stock ownership is that you own a portion of the company’s assets and are entitled to a share of the company’s profit, the money left over after the company subtracts all of its bills (its debt) from all of the money it took in. As you learned in previous blogs, bonds pay interest in the form of a coupon. Well, when companies do well they pay a version of interest in the form of dividends, that is, they pay their shareholders some of the profits, usually on a regular basis. Sometimes dividends are paid quarterly; other times, annually. Unlike coupon payments on bonds, dividend payments are not a given. If the company is doing well, the management of the company may decide to pay a dividend. But, they do not have to do so. They can do well and decide not to pay a dividend. If they do pay a dividend, they also get to decide how they are going to pay it. Dividends are most often paid in two ways: Cash or in additional shares of stock.

Fashionista Fact:

In the 16^th century, Catherine de Medici was engaged to the powerful Duke of Orleans, who later became the King of France. She was petite (not quite five feet) and felt insecure compared to the Duke’s taller and favorite mistress, Diane de Poitiers (who wouldn’t? Diane was considered exceptionally beautiful). So for her wedding, she asked the shoe maker to add two inches to her shoes which gave her both height and a captivating walk. Needless to say, the shoes were a huge success. Given her status as the Queen of France, high heels quickly became associated with privilege and power.  Needless to say, her risk paid dividends (not punny – sorry!).

Filed under: Investing

Tags: stock