Soo Explain Stocks To Me Like I’m Five

What is a stock?

It’s a slice of ownership in a company.

Imagine a fruit company (we’ll call it Apple) needs money to grow. Apple could take out debt, or it could sell stock. If they go the loan route, they have to repay it with interest. If they sell stock, the new stock owner is entitled to a share of future profits.

Example: If there are 100 shares of Apple stock and you own 1, then you own 1% of Apple. That means if Apple distributes $100 in profit (called a dividend) to owners, you’d receive $1.

So what’s the stock market?
It’s a market… but for stocks! At a farmers’ market, you can buy apples and venison; at the stock market, you can buy stock in Apple and John Deere.

When people say “the stock market is up/down,” they’re typically referring to the price of three set bundles of stocks:

• The S&P 500 tracks the 500 largest publicly-traded U.S. companies

• The Dow Jones is the oldest stock index, tracking 30 well-known successful companies (see list)

• The Nasdaq tracks 3,000+ companies, mostly tech companies

So if you invest in the S&P 500, in one transaction, you’re getting ownership in 500 stocks like Apple, Nvidia, Google, Walmart, Exxon, Visa, etc.

What makes the market go up or down?
Investor expectations.

If investors think companies will make more money, they’re willing to pay more to own a slice, and vice versa. If Apple announces they expect to sell waaay more apples next year, stock will rise. News of a war or other major uncertainty will generally cause the stock prices of all companies to go down.

Is the stock market the same as the economy?
No.

The economy refers to actual activity happening right now: jobs, wages, spending, production, etc. The stock market is pricing investor expectations about the future. They’re related, but different.

Still have questions? Today’s TPO Explains on YouTube defines more key terms (IPO, bears/bulls/Battlestar Galactica), explains illegal ways to manipulate the market, and more. Find the link in the