Stocks: The more-or-less complete guide

I'm afraid that I've been misinforming you on the topic of the stock market, so I'm going to write about it again!

First of all, if you don't quite know what a stock is, go here.  Now for the good stuff!

Using Stock Price to Value a Company

As you might know, stocks show the value of a company;  multiplying stock value by the total number of shares shows you how much the company is worth if you were to buy it out this very second.

For example, Coca-Cola (NYSE: KO) is listed as $56.91 per share (share = a single piece of stock).  One share of KO is 1 / 2,310,000,000 of the total company.  So naturally, to find the company's total value, we multiply the share price by 2.31 billion, and get an estimated value of $131,000,000,000.  Of course, if you were to buy them out, you'd have to give them a few billion extra to give
them an incentive to sell.  And they don't accept visa.  (you see?  I
made a joke right there! har har har!)

How Stock Price Fluctuates

Okay, this is a biggie:  There are lots and lots (and lots) of ways that stock prices can change, and many of those are completely uncontrollable and
unpredictable.  But it ultimately boils down to sales, but in a few different ways.

Company effort:  If Apple (NASDAQ: AAPL) releases the iToilet, or something of the sort, people will want to get off their couches (or their old, less Apple-rific toilets), to buy the product.  This gives Apple a profit, which makes their company richer, which makes the share value go up.

Investor effort:  By giving lots of money to Google (NASDAQ: GOOG) in return for shares, Google now has lots of money to do what it wants with.  Thus the company value goes up, and share value goes up.  Of course, if all the investors decided that they want their money back in return for shares, Google would lose a bunch of money because it has to give it back to investors.  Though as you read on, you'll find the second situation to be rather unlikely.

Consumer effort:  Microsoft (NASDAQ: MSFT) does nothing.  However, there are a bunch of people at the mall today (for whatever reasons they have (typically irrational behavior)), and so they get customers just because the consumers think they might as well buy something.  

Consumer effort is probably the most important of the three, since companies tend not to make a new best-selling product every day.  It accounts for the rapid fluctuation and sudden inexplicable dips in share price, following the mood of the stock market on a particular day.  For that reason, you shouldn't always count on a company to grow despite a failing market, since low enthusiasm will take over eventually.  

The nature of stock (basically an extended definition)

Once a company makes an Initial Public Offering (IPO, basically putting itself on the stock market), it will get money for the shares that are bought.  However, from then on, the shares get traded between investors.  If you were to sell your shares of BP (NYSE: BP) (a little late for that, don't you think?), you would not be given money by BP, but would have to be payed by some fool who wants the shares for whatever reason.  If no one wants to buy your shares, then you're completely and utterly screwed.  

The only way you could sell to BP would be if they declared they would buy back shares (they might do this to remain the dominant owners of the company (because a share is the right to ownership of a fraction of the company)).

But there is an upside to trading with fellow investors:  bartering.  You could sell your shares for a value different from current price, in order to milk more money from desperate investors, or to get rid of shares more quickly.  Thus you can sell at a higher or lower price than listed value, for each respective effect.

Error

Did you know that stock value is not exact to the company's value?  The only time we know for certain how much money DuPont (NYSE: DD) made is when they issue a quarterly earnings report.  This, as the name suggests, is issued once every three months ( = a business quarter), and shows the total profit (or loss) made by the company over the term.  

All other times, we can have quite a lot of error in our valuation of a company, based mostly on "guesstimations" and hints given from the corporation or market analysts.  For that reason, a quarterly report can make the share value jump ridiculously high, or fall to an abysmal pit of despair.

Alright, that's all for now!  By the way, if you managed to get this far,

a)  Congratulations on your survival!  Darwin would be proud.

b)  What did you think?  I'd love to make things more entertaining for you, just say the word!

c)  Would using video be a better medium?  I might do it you know.  Maybe.  Probably not.  But maybe :)