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Lesson 4. What Is a Stock? > The Two Main Issues of Stock - Pg. 20

What Is a Stock? 20 If you are willing to paint someone's house for $40, and someone is willing to pay you $40 to do it, that's exactly what your service is worth. If you want $50 but can't find anyone to pay that, then the service may not be worth $50. And the reverse is true too. If you agree to $40, not knowing that someone would be willing to pay you $50, then the service is actually worth $50 and you have just undersold yourself. In economic terms, this phenomenon is called supply and demand. It's what drives the stock market and determines the prices of all stocks. Kinds of Stock The stocks themselves get a little more complicated than the paint job scenario just mentioned. There are different kinds of stock, and they are differentiated by some very fine print. While all stocks represent ownership of shares of a company, they aren't all alike. A stock can be an actual document or a virtual notation on someone's computer. Here is a list of stock categories: · Blue Chip Stock. --A share of one of the most established and financially secure companies in the country. · Secondary Stock. --A share of a company with substantial backing that is not quite considered blue chip. · Income Stock. --A stock that is usually characterized by its issuing company's focus on providing higher dividends. · Growth Stock. --The stock of a company that is still small but is believed by its shareholders to have great growth potential. · Penny Stock. --A highly speculative stock in a company with little or no real value other than its uncertain growth potential.