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Stock is ownership, simple as that. Buy a share of a company and you acquire a tiny sliver of the company, tying your fate to that of the chairman and board, for better or worse. This is ownership in the most literal sense: You get a piece of contract, every desk and trademark in the place. Better yet, you own a slice of every dollar of profit that comes through the door. The more shares you buy, the bigger your stake becomes. How Are Stocks Valued? The stock market itself is basically a daily accounting on the value of the companies that trade there. What about all those guys screaming at each other? Their job is to take in the day's news and distill it down to a single question: Will this help the companies I own make money in the future, or will it slow the process or stop it? Earnings (a.k.a. profits) are the ultimate measure of value as far as the market is concerned. It IS the bottom line. Wall Street is obsessed with earnings. Companies report their profits each quarter and investors scour over the numbers -- expressed as earnings per share -- trying to figure out a company's current status and future potential for them. The market rewards both stable earnings growth and fast earnings growth. Stock traders will even pay up for a money-losing company that promises to earn a lot in the future. Things the market will not put up with is falling earnings or losses that can't be explained. Companies that catch Wall Street off guard with bad quarterly reports almost always suffer. How About Risk? Even though history shows us that stocks tend to rise given the fullness of time, there are NO guarantees -- especially when it comes to individual stocks. The only assured return from a stock is if it appreciates on the open market. Even though many companies pay their shareholders a dividend out of their earnings, they are under no obligation to do so. The worst-case scenario is that a company goes bankrupt and you lose the value of your entire investment. Fortunately, those times are rare. More often than not, a company will run into a short-term problem that depresses the price of its stock for what seems like an unbelievably long period of time. If you do your homework, study the companies you are interested in, and watch for future growth potential, you should do fine with your stock investments. As always it is good to get professional advice from those individuals with the knowledge you desire.

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