Investors Toolkit – What Is a Stock?

At Sequoia Advisor Group, we believe an informed investor is a better investor. Being informed helps you to make smart decisions amidst the noise. Our “Investors Toolkit” series will explain key financial concepts clearly, empowering you to manage your financial life effectively. We start with the basics: "What Is a Stock?"

Owning Stock Means Owning Part of a Company

A stock represents partial ownership in a business—typically a large, publicly traded company. Just as owning your home or car gives you rights, owning stock also grants certain rights:

• Voting rights – Shareholders usually get one vote per share on matters like electing the board of directors or approving mergers.

• Dividend rights – Shareholders may receive dividends, paid in cash or additional stock (explained further below).

• Right to transfer ownership – Shares can be bought, sold, or transferred freely.

• Right to information – Shareholders have access to financial reports and can attend annual meetings.

Owning stock, however, does not mean managing the day-to-day operations—that role belongs to the company's executives and board of directors. The board oversees management, makes critical decisions, and decides when dividends are paid. The company executives run the business.

Why Own Stock?

When you buy stock, you’re buying a piece of a company’s future profits. By owning stock, your money works for you as you benefit from the success of some of the world's most profitable businesses. As the companies grow you build wealth over time.

How Shareholders Make Money

There are two primary ways investors benefit from owning stock:

1. Dividends – Companies may share profits by paying dividends. For example, a cash dividend of 50¢ per share means 1,000 shares would pay you $500. A stock dividend (additional shares) increases your overall ownership.

2. Stock Price Appreciation – Suppose you purchase 100 shares at $50 each, totaling $5,000. If the share price increases to $60, your investment grows to $6,000, resulting in a $1,000 profit if you sell.

Understanding Risk

Stock investments experience daily fluctuations known as volatility. Risk refers to the possibility your investment may lose some, or even all, of its value. Earlier we discussed stock price appreciation – the other side of that coin is stock price decline. If the price of the shares you bought for $50 each falls to $40, your investment is worth $4,000 – a $1,000 loss.

Remember, these values reflect what another investor is willing to pay for your shares at that particular time. They are numbers on paper until you sell an investment. Your home is another asset that fluctuates in price, but until you are selling your house, the short-term price changes are largely irrelevant.

While volatility can feel unsettling, it's important to remember that temporary declines are normal. Historically, well-managed and diversified investment portfolios typically recover and grow over the long term. Managing risk effectively involves maintaining a balanced, diversified portfolio aligned with your personal goals and timeframe.

Why Do Stock Prices Go Up and Down?

The fluctuation of stock prices – movement up and down – is due to supply and demand. When more investors want to buy than sell (higher demand), prices rise; when more investors want to sell than buy (lower demand), prices fall. Factors that influence demand can include:

• External Events:

o Global crises (like COVID-19 or geopolitical conflicts)

o Economic shifts (inflation, high interest rates)

o Market bubbles (like the late ‘90s tech bubble).

• Company Performance:

o Profitability

o Financial health (low debt, sufficient cash reserves)

o Competitive strengths

o Growth potential

Keep This in Mind

We encourage you to view investing like using a crockpot, rather than a microwave. Your goals – such as retirement and saving for college – likely span decades. Short-term market movements should not lead you to impulsively change long-term strategies. Stick to your plan, stay diversified, and remain focused on your ultimate financial goals.

Over the coming months, we’ll continue building your “Investors Toolkit.” Please reach out with any questions. We want to be a part of your success, and we're here to help.