How to Understand Stocks

Video Transcript

"Hi, there. I'm Cathy Pareto, the founder of Cathy Pareto and Associates, certified financial planner, here in Miami, Florida. In this clip, we're going to talk about how to understand stocks. Well, let's first define what is a stock? As an investor, when you buy a stock, you're actually buying a piece of the company that you just bought the stock for. So let's say it's Cisco Systems. You're actually buying your own little sliver of Cisco Systems, a public...publicly traded company. I'm not endorsing it, but it's just the concept. You're buying a piece of the ownership of that company, just like Bill Gates owns Microsoft. So as an equity investor, you have to remember a couple of things. You may potentially lose the value of that stock. An equity investment -- a stock -- is subject to market risk, company risk, industry risk. So it's not a sure thing. Now, on the upside, you can make a lot of money with a stock. But on the downside, you can also lose a lot of money with a stock. So you want to be aware of the companies that you're buying and make sure they're solid companies and make sure that the stocks that you're buying mix in well with the other positions that you already own if you own other positions. And that's a little bit about understanding stocks. At the end of this, always educate yourself, and this has been Cathy Pareto in Miami, Florida."