What Is Risk Tolerance? Understanding Your Comfort Level as an Investor
May 15, 2026
8 min read
What Is a Stock? A Beginner's Guide to Shares and Company Ownership
Stocks are mentioned constantly in investing conversations — but what does it actually mean to own one? Here's a plain-English explanation of what stocks are, how they work, and what owning shares in a company really gives you.
For educational purposes only. This article is not financial advice. Always consult a qualified financial professional before making investment decisions.
If you've ever thought about investing, stocks are probably the first thing that came up. They're the foundation of most portfolios and the basis for many of the terms you'll encounter in investing discussions. But what does "owning a stock" actually mean?
This article explains what stocks are, how they work, and what buying and selling them actually involves. It's a starting point, not a complete guide — and as always, nothing here is financial advice.
---
What Is a Stock?
A stock — also called a share or equity — represents a small piece of ownership in a company. When a company issues stock, it divides itself into millions (sometimes billions) of tiny ownership slices and makes those slices available for people to buy.
When you own a share in a company, you're a shareholder — technically a part-owner of that business, however small that portion might be. If a company has issued 100 million shares and you own 1,000 of them, you own 0.001% of the company.
The terms "stock," "share," and "equity" are often used interchangeably. Technically, "stock" usually refers to ownership in a company in general, while "shares" refers to specific units. But in everyday use, they mean the same thing.
---
Why Do Companies Sell Shares?
Businesses need money to grow — to hire people, build products, expand into new markets, or acquire other companies. They can borrow money (usually through bank loans or bonds), or they can raise it by selling ownership stakes in the form of shares.
The first time a company offers its shares to the public is called an Initial Public Offering (IPO). After that, those shares trade between buyers and sellers on a stock exchange.
From the company's perspective, selling shares has advantages over borrowing: they don't have to pay it back, and there's no fixed interest cost. The trade-off is that they give up a portion of ownership and future profits — and take on responsibilities to their shareholders.
---
How Stocks Are Traded
Once a company is publicly listed, its shares trade on a stock exchange — like the London Stock Exchange (LSE) in the UK, the New York Stock Exchange (NYSE), or NASDAQ in the US.
Every publicly listed company has a ticker symbol: a short code used to identify it. Apple trades under AAPL. Barclays trades under BARC. If you want to look up a company on a trading platform or portfolio tracker, the ticker is the quickest way to find it.
When you buy shares, you're not buying them from the company — you're buying them from another investor who wants to sell. When you sell, you're selling to someone who wants to buy. The exchange facilitates these transactions and ensures prices are fair and transparent.
The price you see for a stock is the last price at which it traded. It moves throughout the trading day based on how many people want to buy versus how many want to sell.
---
Two Ways to Make Money from Stocks
There are two ways shareholders can benefit from owning shares:
Price appreciation — if the company grows and becomes more valuable, the share price tends to rise. If you bought shares at £5 and they're now worth £8, you have an unrealised gain of £3 per share. You only lock in that gain when you actually sell.
Dividends — some companies pay out a portion of their profits to shareholders as regular cash payments. Not all companies do this; those focused on growth often reinvest profits back into the business instead. But for companies that do pay dividends, shareholders receive payments without needing to sell any shares. We covered dividends in more depth in a separate article.
Most long-term investors benefit from both: the portfolio grows in value over time, while some holdings provide dividend income along the way.
---
What Makes a Share Price Move?
Lots of things. Here's a simplified version:
Company performance — if a company reports better-than-expected profits, its share price often rises. If it reports a loss or a disappointing quarter, the price usually falls.
Expectations and sentiment — share prices don't just reflect what a company has done; they reflect what investors believe it will do in the future. A company with strong growth prospects can have a high share price even if it's not currently profitable.
Broader market conditions — interest rates, inflation, economic growth, and geopolitical events all affect how investors feel about risk, which in turn affects share prices across the board.
Supply and demand — ultimately, prices move because buyers and sellers agree on a price. More buyers than sellers push prices up. More sellers than buyers push them down.
This is why share prices can feel unpredictable day-to-day. In the short term, prices reflect all of the above, plus news, rumour, and investor sentiment. Over long periods, prices tend to reflect underlying business performance more clearly.
---
Reading a Stock: Some Basic Figures
When you look up a stock, you'll typically see a few numbers alongside the price. Here are the most common ones:
Market capitalisation (market cap) — the total value of all the company's shares combined. It's the share price multiplied by the number of shares outstanding. A "large-cap" company has a market cap in the hundreds of billions. A "small-cap" company might have a market cap under £300 million.
Price-to-earnings ratio (P/E) — the share price divided by earnings per share. It's a rough indication of how much investors are paying for £1 of a company's earnings. A high P/E suggests investors expect strong future growth. A low P/E can mean a company is undervalued — or that investors are cautious about its future. It's useful context, not a verdict on its own.
Dividend yield — the annual dividend per share as a percentage of the current share price. A 4% yield means you'd receive £4 per year for every £100 invested at the current price, assuming the dividend holds.
52-week high and low — the highest and lowest prices the stock has traded at over the past year. Useful for a quick sense of where the current price sits relative to recent history.
None of these figures tells the full story on its own. They're starting points for research, not conclusions.
---
Individual Stocks vs. Funds
Buying individual stocks gives you direct, concentrated exposure to specific companies. If you pick well, the gains can be significant. If you pick badly — or the company runs into trouble — you can lose a large proportion of your investment.
This concentration is the key risk of individual stocks. A single piece of bad news — an accounting scandal, a product recall, a regulatory fine, a CEO departure — can wipe 20, 30, or 50% off a share price in a day. If that company represents a large chunk of your portfolio, the impact is severe.
This is why many investors hold individual stocks alongside broader funds or ETFs, rather than in place of them. A core of diversified holdings manages the concentration risk; a smaller allocation to individual stocks allows for more direct exposure to companies you've researched and believe in.
There's no universal right split. It depends on how much time and effort you're willing to put into research, your tolerance for volatility, and what you're hoping your portfolio will do.
---
The Practical Side of Tracking Stocks
Once you own shares in several different companies — particularly across different countries and currencies — keeping track of things becomes genuinely useful.
The price you paid matters because it determines whether you're currently sitting on a gain or a loss. When you own multiple stocks bought at different times and prices, knowing your average cost per share for each is important context for any decision you might make.
A portfolio tracker like FolioTrack records your purchase history and shows your current gain or loss for each position — in both pound terms and percentage terms. If you've added to a position over time (buying more shares at different prices), it calculates your weighted average cost automatically.
You can also see how much of your portfolio is in individual stocks versus funds, how concentrated you are in particular sectors, and how your positions have performed relative to each other. That breakdown is useful for understanding what's actually driving your overall returns — which isn't always the holding you'd expect.
---
A Few Things Worth Remembering
Shares can go to zero. Companies fail. If a company goes bankrupt, shareholders are last in line — creditors and bondholders get paid first. In some cases, shareholders receive nothing. This is the worst case, but it's a real one.
Short-term price movements tell you very little. A share dropping 10% in a week doesn't necessarily mean the company is in trouble. It might mean broader markets fell, sentiment shifted, or a large fund sold a big position. Context always matters.
Past performance doesn't predict future performance. A stock that has risen 50% over the past three years is not guaranteed to continue rising. Historical price movements are not a forecast.
Owning individual companies requires ongoing attention. Unlike a passive index fund, individual stocks don't automatically rebalance or adjust. A company's circumstances can change quickly — which is one reason many investors start with funds before adding individual stocks.
Nothing in this article is financial advice. Whether individual stocks are right for your portfolio — and which ones — depends on your circumstances, goals, and risk tolerance. A qualified financial adviser can help you think through how stocks fit into your overall financial plan.
---
The Short Version
A stock is a unit of ownership in a company. When you buy shares, you become a part-owner of that business, entitled to a share of its profits (through dividends) and any growth in its value. Stocks trade on exchanges, with prices moving based on company performance, investor expectations, and broader market conditions. Individual stocks can offer strong returns but also carry concentrated risk — one reason many investors hold them alongside diversified funds. Keeping track of what you own, what you paid, and how each position is performing is where a portfolio tracker earns its place.
This article explains what stocks are, how they work, and what buying and selling them actually involves. It's a starting point, not a complete guide — and as always, nothing here is financial advice.
---
What Is a Stock?
A stock — also called a share or equity — represents a small piece of ownership in a company. When a company issues stock, it divides itself into millions (sometimes billions) of tiny ownership slices and makes those slices available for people to buy.
When you own a share in a company, you're a shareholder — technically a part-owner of that business, however small that portion might be. If a company has issued 100 million shares and you own 1,000 of them, you own 0.001% of the company.
The terms "stock," "share," and "equity" are often used interchangeably. Technically, "stock" usually refers to ownership in a company in general, while "shares" refers to specific units. But in everyday use, they mean the same thing.
---
Why Do Companies Sell Shares?
Businesses need money to grow — to hire people, build products, expand into new markets, or acquire other companies. They can borrow money (usually through bank loans or bonds), or they can raise it by selling ownership stakes in the form of shares.
The first time a company offers its shares to the public is called an Initial Public Offering (IPO). After that, those shares trade between buyers and sellers on a stock exchange.
From the company's perspective, selling shares has advantages over borrowing: they don't have to pay it back, and there's no fixed interest cost. The trade-off is that they give up a portion of ownership and future profits — and take on responsibilities to their shareholders.
---
How Stocks Are Traded
Once a company is publicly listed, its shares trade on a stock exchange — like the London Stock Exchange (LSE) in the UK, the New York Stock Exchange (NYSE), or NASDAQ in the US.
Every publicly listed company has a ticker symbol: a short code used to identify it. Apple trades under AAPL. Barclays trades under BARC. If you want to look up a company on a trading platform or portfolio tracker, the ticker is the quickest way to find it.
When you buy shares, you're not buying them from the company — you're buying them from another investor who wants to sell. When you sell, you're selling to someone who wants to buy. The exchange facilitates these transactions and ensures prices are fair and transparent.
The price you see for a stock is the last price at which it traded. It moves throughout the trading day based on how many people want to buy versus how many want to sell.
---
Two Ways to Make Money from Stocks
There are two ways shareholders can benefit from owning shares:
Price appreciation — if the company grows and becomes more valuable, the share price tends to rise. If you bought shares at £5 and they're now worth £8, you have an unrealised gain of £3 per share. You only lock in that gain when you actually sell.
Dividends — some companies pay out a portion of their profits to shareholders as regular cash payments. Not all companies do this; those focused on growth often reinvest profits back into the business instead. But for companies that do pay dividends, shareholders receive payments without needing to sell any shares. We covered dividends in more depth in a separate article.
Most long-term investors benefit from both: the portfolio grows in value over time, while some holdings provide dividend income along the way.
---
What Makes a Share Price Move?
Lots of things. Here's a simplified version:
Company performance — if a company reports better-than-expected profits, its share price often rises. If it reports a loss or a disappointing quarter, the price usually falls.
Expectations and sentiment — share prices don't just reflect what a company has done; they reflect what investors believe it will do in the future. A company with strong growth prospects can have a high share price even if it's not currently profitable.
Broader market conditions — interest rates, inflation, economic growth, and geopolitical events all affect how investors feel about risk, which in turn affects share prices across the board.
Supply and demand — ultimately, prices move because buyers and sellers agree on a price. More buyers than sellers push prices up. More sellers than buyers push them down.
This is why share prices can feel unpredictable day-to-day. In the short term, prices reflect all of the above, plus news, rumour, and investor sentiment. Over long periods, prices tend to reflect underlying business performance more clearly.
---
Reading a Stock: Some Basic Figures
When you look up a stock, you'll typically see a few numbers alongside the price. Here are the most common ones:
Market capitalisation (market cap) — the total value of all the company's shares combined. It's the share price multiplied by the number of shares outstanding. A "large-cap" company has a market cap in the hundreds of billions. A "small-cap" company might have a market cap under £300 million.
Price-to-earnings ratio (P/E) — the share price divided by earnings per share. It's a rough indication of how much investors are paying for £1 of a company's earnings. A high P/E suggests investors expect strong future growth. A low P/E can mean a company is undervalued — or that investors are cautious about its future. It's useful context, not a verdict on its own.
Dividend yield — the annual dividend per share as a percentage of the current share price. A 4% yield means you'd receive £4 per year for every £100 invested at the current price, assuming the dividend holds.
52-week high and low — the highest and lowest prices the stock has traded at over the past year. Useful for a quick sense of where the current price sits relative to recent history.
None of these figures tells the full story on its own. They're starting points for research, not conclusions.
---
Individual Stocks vs. Funds
Buying individual stocks gives you direct, concentrated exposure to specific companies. If you pick well, the gains can be significant. If you pick badly — or the company runs into trouble — you can lose a large proportion of your investment.
This concentration is the key risk of individual stocks. A single piece of bad news — an accounting scandal, a product recall, a regulatory fine, a CEO departure — can wipe 20, 30, or 50% off a share price in a day. If that company represents a large chunk of your portfolio, the impact is severe.
This is why many investors hold individual stocks alongside broader funds or ETFs, rather than in place of them. A core of diversified holdings manages the concentration risk; a smaller allocation to individual stocks allows for more direct exposure to companies you've researched and believe in.
There's no universal right split. It depends on how much time and effort you're willing to put into research, your tolerance for volatility, and what you're hoping your portfolio will do.
---
The Practical Side of Tracking Stocks
Once you own shares in several different companies — particularly across different countries and currencies — keeping track of things becomes genuinely useful.
The price you paid matters because it determines whether you're currently sitting on a gain or a loss. When you own multiple stocks bought at different times and prices, knowing your average cost per share for each is important context for any decision you might make.
A portfolio tracker like FolioTrack records your purchase history and shows your current gain or loss for each position — in both pound terms and percentage terms. If you've added to a position over time (buying more shares at different prices), it calculates your weighted average cost automatically.
You can also see how much of your portfolio is in individual stocks versus funds, how concentrated you are in particular sectors, and how your positions have performed relative to each other. That breakdown is useful for understanding what's actually driving your overall returns — which isn't always the holding you'd expect.
---
A Few Things Worth Remembering
Shares can go to zero. Companies fail. If a company goes bankrupt, shareholders are last in line — creditors and bondholders get paid first. In some cases, shareholders receive nothing. This is the worst case, but it's a real one.
Short-term price movements tell you very little. A share dropping 10% in a week doesn't necessarily mean the company is in trouble. It might mean broader markets fell, sentiment shifted, or a large fund sold a big position. Context always matters.
Past performance doesn't predict future performance. A stock that has risen 50% over the past three years is not guaranteed to continue rising. Historical price movements are not a forecast.
Owning individual companies requires ongoing attention. Unlike a passive index fund, individual stocks don't automatically rebalance or adjust. A company's circumstances can change quickly — which is one reason many investors start with funds before adding individual stocks.
Nothing in this article is financial advice. Whether individual stocks are right for your portfolio — and which ones — depends on your circumstances, goals, and risk tolerance. A qualified financial adviser can help you think through how stocks fit into your overall financial plan.
---
The Short Version
A stock is a unit of ownership in a company. When you buy shares, you become a part-owner of that business, entitled to a share of its profits (through dividends) and any growth in its value. Stocks trade on exchanges, with prices moving based on company performance, investor expectations, and broader market conditions. Individual stocks can offer strong returns but also carry concentrated risk — one reason many investors hold them alongside diversified funds. Keeping track of what you own, what you paid, and how each position is performing is where a portfolio tracker earns its place.
Track Your Portfolio with FolioTrack
See how your investments are really performing with AI-powered insights, index comparisons, and dividend tracking.
Start free 14-day trial