Brittany Waldrep

A lot of people don’t know that in 1983 Bank of America bought Charles Schwab & Co. lock, stock, and broker, with my dad staying on as chairman and CEO. Within four years he had bought back his company. But in those first few months of being under the Bank of America corporate umbrella, Schwab employees were offered the option of purchasing shares of BofA stock commission-free. Fresh out of college and just having received my broker’s license—and never having actually placed a stock order for myself—I purchased two shares. Not two dozen shares or two hundred shares or two thousand shares. just two shares, which I still own. I always joked that while my dad was one of the largest Bank of America shareholders, I was the smallest. Still, eighteen years later, with the two shares that I bought for $44 now grown to almost $400, a tiny sliver of that BofA pie remains mine. Stocks (also referred to as equities) represent ownership. When you buy even a single share of stock, you’re actually buying a piece of that company. That’s what sets buying a stock apart from any other investment. Of course, this gives you not only the greatest opportunity for growth but also the greatest exposure to volatility if that company doesn’t perform well.
Depending on the company’s market value (the share price multiplied by the number of shares outstanding), stocks are classified as either large-capitalization (the top 5% of companies, generally with market value greater than $8.2 billion), small-capitalization (the bottom 80% of companies, with market value less than $1.3 billion), or mid-capitalization (the 15% in between). Both the Dow Jones Industrial Average and the S&P 500 Indexes are made up of mostly large-cap companies, with General Electric, and its more than $250 billion market cap, currently leading the herd. Though each category carries different levels of risk and reward, the object isn’t to choose one among them but to come up with a mix.
Other terms you’ll hear are growth and value styles. A growth stock is just what its name implies; its earnings (and usually its share price) are expected to grow rapidly. It pays negligible dividends because most of its profits are funneled right back into the company—to foster more growth. Growth investors are optimistic about the future of the firms in which they invest and are willing to pay a premium for this potential. This strategy has been most effective when new industries are developing and advancing, such as the rise of technology and biotechnology throughout the l990s.
A value stock is a different creature. Investors who take a value approach are looking for fundamentally strong companies whose share prices might be depressed for any number of short-term reasons. Because a company’s stock is believed to be underpriced, it is thought to represent good value. Value investors believe that, at some point in the future, the true value will emerge, the share price will increase, and they’ll profit from buying at a lower price today. Some value stocks also tend to pay higher dividends, which may help increase your overall return.