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Stocks: owning a slice of a company
First traded shares 1602· Asset or instrument
Fact, law or dataA rule, statute, definition or measured number.
A share of stock is a slice of ownership in a company: a claim on its future profits and a vote on its board.
See it on the Money & Finance map →How it works
Shareholders own what is left after a company pays its lenders, employees and taxes. Their liability is limited: they can lose only what they paid. Returns come from dividends plus price changes, which follow earnings growth and shifts in what investors will pay for those earnings. The Dutch East India Company, in Amsterdam in 1602, is usually credited with the first publicly traded shares. US stocks returned about 10% a year on average since 1926, before inflation, with deep drops along the way.
Why it matters
Stocks are the main way companies raise ownership capital and the largest engine of long-term household wealth, worth more than $60 trillion in the US in 2025.
Think of it like
Like a limited partner's stake in a building LLC: you share cash flow and appreciation after the lender is paid, and risk only your investment.
Facts, rules and data
Exchange records and SEC filings; the CRSP database of US returns since 1926. Individuals get exposure through a brokerage account, most cheaply via broad index funds or ETFs.
Debates and risks
Whether future US stock returns will match the past, given high valuations and the unusual 20th-century success of the US, is genuinely debated.
Inside this (9)
- Stock exchanges: NYSE and Nasdaq
- Stock indexes: the Dow, S&P 500 and Nasdaq
- Earnings, market cap and the P/E ratio
- Options and other derivatives
- Bull markets, bear markets and corrections
- Dividends and stock buybacks
- Short selling: betting a stock will fall
- Warren Buffett and value investing
- Brokerage accounts and SIPC protection (up to $500,000)
Connections (11)
▸Corporate bonds and credit spreads get repaid in bankruptcy before Stocks: owning a slice of a companyFact, law or data
The connection
Bondholders are creditors with a legal claim to fixed payments; shareholders are owners who get what is left. In bankruptcy the 'absolute priority rule' pays secured debt, then unsecured bonds, then preferred stock, then common stock, which is often wiped out. So bonds are safer but capped; stocks carry the upside.
When and why
US bankruptcy law, especially Chapter 11 of the 1978 Bankruptcy Code, building on Supreme Court rulings such as Northern Pacific Railway v. Boyd (1913).
How we know
Court records and Moody's recovery studies: senior unsecured bonds recover roughly 40 cents on the dollar on average, while shareholders usually get nothing.
Debates and risks
Negotiated deals often bend the priority rule; in Hertz's 2020–21 bankruptcy shareholders unusually came out with value.
▸Stocks: owning a slice of a company trade on Stock exchanges: NYSE and NasdaqFact, law or data
The connection
A company lists its shares on an exchange after meeting its standards for size, shareholders and governance. Investors' orders go through brokers; the exchanges match bids and offers and publish the best prices. Even trades done off-exchange must match or beat those public quotes, so exchanges anchor every stock's price.
When and why
On the NYSE since 1792 and Nasdaq since 1971; regular trading runs 9:30 a.m. to 4 p.m. Eastern, settling one business day later.
How we know
SEC registration of exchanges under the 1934 Act; every trade prints to the consolidated tape, a public record.
Debates and risks
Whether the shift of about half of volume to off-exchange venues weakens public price discovery is debated by regulators and exchanges.
▸Stock indexes: the Dow, S&P 500 and Nasdaq track baskets of Stocks: owning a slice of a companyFact, law or data
The connection
An index provider picks a basket of stocks and combines their prices with a weighting rule: by share price (the Dow), by market value (the S&P 500 and Nasdaq Composite) or equally. Being added matters, because index funds must then buy the stock, often lifting its price; being dropped forces selling.
When and why
From Charles Dow's 1896 average to today's providers, S&P Dow Jones Indices, FTSE Russell and MSCI, which license indexes to funds.
How we know
Published index rules and member lists; academic studies since 1986 (Shleifer; Harris and Gurel) measured the jump when a stock joins the S&P 500.
Debates and risks
Whether the rise of index funds now distorts stock prices, and why the 'index effect' on newly added stocks has shrunk in recent years.
▸Dividends and stock buybacks return cash to owners of Stocks: owning a slice of a companyFact, law or data
The connection
A shareholder's return is cash paid out plus the change in share price. Dividends pay cash per share; buybacks retire shares so each remaining one owns more profit. Over the long run reinvested dividends have supplied a large part of total US stock returns; the share price drops by about the dividend on the ex-dividend date.
When and why
Dividends date back at least to the East India companies of the early 1600s; US buybacks surged after SEC Rule 10b-18 in 1982.
How we know
S&P's quarterly dividend and buyback data; long-run return series (Shiller, CRSP) split returns into income and price change.
Debates and risks
Modigliani and Miller argued in 1961 that payout policy alone should not change a firm's value; how much taxes and signaling alter that is debated.
▸Stocks: owning a slice of a company mostly enrich the top 10%, widening Income and wealth inequalityMainstream view
The connection
Stock ownership is concentrated: the top 10% of US households own close to 90% of household stocks, directly or through funds, and the bottom half about 1%. So when stock prices rise faster than wages, as for much of 2010–2025, wealth gaps widen even if no one's pay changes. Retirement accounts spread some ownership, but most balances are small.
When and why
United States, especially since the 1980s; measured by the Federal Reserve's Distributional Financial Accounts and its Survey of Consumer Finances.
How solid is the link?
Fed data show that concentration persisting for years, even though roughly 58–62% of households own some stock, per the Fed's survey and Gallup polls.
Debates and risks
Whether broader ownership, such as automatic 401(k) enrollment or government-seeded children's accounts, could meaningfully narrow the gap is debated.
▸Asset classes: the menu of investments include Stocks: owning a slice of a companyFact, law or data
The connection
Stocks are the growth asset class: owners share in profits after lenders are paid, with no cap on gains and no promise of payment. That has meant the highest long-run returns, about 10% a year for US large companies since 1926, and the deepest drops.
When and why
Shares have traded since the Dutch East India Company (1602); US stocks now make up roughly 60% of global stock-market value.
How we know
Long-run data from SBBI and Dimson, Marsh and Staunton; Jeremy Siegel's Stocks for the Long Run popularized the record.
Debates and risks
Whether US stocks' strong past reflects a lucky century: some markets, such as Russia's in 1917 and China's in 1949, were wiped out entirely.
▸South Sea Bubble (1720) was an early mania in Stocks: owning a slice of a companyFact, law or data
The connection
The South Sea craze was one of the first manias in tradable company shares, a form only about a century old. Investors bought on rising prices and installment plans, and copycat companies floated shares for vague ventures. The crash and the Bubble Act soured Britain on joint-stock companies, slowing their spread until the act's repeal in 1825.
When and why
Exchange Alley, London, 1720, alongside John Law's Mississippi Company in Paris and smaller share booms in Amsterdam.
How we know
Price lists such as John Castaing's Course of the Exchange record the daily share prices; the Bubble Act of 1720 is on the statute books.
Debates and risks
Historians debate whether the Bubble Act aimed to curb speculation or to protect the South Sea Company from rival share issues.
▸Pump-and-dump schemes target thinly traded Stocks: owning a slice of a companyFact, law or data
The connection
Penny stocks trading over the counter have few shares changing hands and little public information, so modest buying moves the price. Promoters exploit that: they buy, publish glowing tips, and sell as followers bid it up. It rarely works with large, heavily traded stocks, because moving them takes too much money.
When and why
Long Island boiler rooms in the 1980s–90s, spam emails in the 2000s, and social media and tiny Nasdaq listings since 2020.
How we know
SEC trading suspensions and enforcement cases, plus SEC and FINRA investor alerts describing the pattern.
Debates and risks
Whether tighter disclosure rules for over-the-counter stocks, in force since 2021, and stricter listing standards actually cut losses is not yet clear.
▸Common equity: the sponsor's first-loss, all-upside slice plays the same last-paid, unlimited-upside role as Stocks: owning a slice of a companyMainstream view
The connection
A shareholder, like a property's common equity, is paid after the company's lenders and other creditors and keeps any profit beyond. Both can lose everything, and both can multiply. The differences: stock trades daily with limited liability, while property equity is private, illiquid and may come with personal guarantees.
When and why
A general principle of corporate and partnership law, applying to listed companies and to the private LLCs that own buildings.
How solid is the link?
Bankruptcy's absolute-priority rule puts shareholders and LLC members last; Chapter 11 cases routinely wipe out both.
Debates and risks
Whether private property equity is really less volatile than stocks, or just appraised less often, is debated.
▸Flow of funds: the Fed's Z.1 map of who owes what to whom shows household wealth swinging mostly with Stocks: owning a slice of a companyFact, law or data
The connection
Z.1's household balance sheet shows directly and indirectly held stocks as the biggest single swing factor in net worth. In the second quarter of 2026, household net worth rose $12.8 trillion to $195.9 trillion, mostly from stock gains; quarters of falling markets show the reverse. Homes, the other big asset, move more slowly.
When and why
Z.1 table B.101 for households and nonprofits, published quarterly; the second-quarter 2026 data came out September 11, 2026.
How we know
The Fed's release text attributes each quarter's change to revaluations of equities and real estate.
Debates and risks
How much rising stock wealth actually lifts consumer spending, the 'wealth effect', is debated; estimates run a few cents per dollar.
▸Euronext: the Amsterdam, Paris and Milan exchanges includes Amsterdam, the birthplace of Stocks: owning a slice of a companyFact, law or data
The connection
In 1602 the Dutch East India Company (VOC) sold shares to the public in Amsterdam, and buyers soon traded them with each other, creating the first continuous market in company shares. That model of permanent capital, tradable shares and limited liability spread to London and the rest of the world.
When and why
Amsterdam from 1602; over 1,000 investors subscribed to the VOC's first offering, and trading moved into a purpose-built exchange building in 1611.
How we know
The VOC subscription register survives in Dutch archives, a 1606 share certificate was found in 2010, and historians such as Lodewijk Petram have documented the trading.
Debates and risks
Whether earlier share trading, such as in medieval Toulouse mill companies, counts as the true first stock market.