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A single evening only brought in $1 billion at auction one other time, Paul Allen’s estate in 2022.
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Rothko: $98.4M, a new record for the artist
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Beginners in Stock Trading
What a stock actually is
- What you legally own when you buy a share of stock
- Why companies sell shares in the first place
- The difference between common shares, preferred shares, and "the shares everyone is talking about"
- Why understanding the legal structure matters even if you'll never read a 10-K filing
This is the second lesson of the year. Yesterday we covered why this work is worth your time. Today we cover the foundation that everything else sits on.
WHAT YOU OWN
A share of common stock is a fractional ownership claim on a business.
If a company has issued one billion shares and you own one of them, you own one one-billionth of the business — and one one-billionth of:
- Whatever profits the business produces in the future
- Whatever assets the business has after debts are paid (if it ever liquidates)
- One vote on certain corporate matters (election of board members, major mergers)
That is the legal substance of "owning a stock." It is not a ticket. It is not a bet. It is a small piece of an actual operating business.
The price you see on your screen — whatever Apple or Costco happens to be trading at today — is the market's continuous estimate of what one of those fractional ownership claims is worth, given everything currently known about the business and the broader economy. The price moves because the estimate moves. The underlying ownership claim does not change just because the price did.
This distinction sounds like semantics. It is not. The traders who survive over decades — the ones we'll meet in Month 8 — almost universally think of stocks as ownership stakes in businesses, not as tickers that move up and down. The ones who don't, generally don't survive.
"Most people who buy stocks don't have a clue what they're doing. They buy on tips, on rumors, on news stories. They don't take the time to learn the basics — like what a stock is."
William O'Neil, How to Make Money in Stocks (paraphrased from Ch. 1)
WHY COMPANIES SELL SHARES
The other half of the question: why do companies create shares to sell in the first place?
A business needs capital to grow. It can get that capital in two basic ways: borrow it (debt) or sell ownership (equity). Both have costs.
Borrowing means the business owes money back, with interest, on a schedule. If the business has a bad year, the lender still wants paid. If the business can't pay, the lender can force the business into bankruptcy. The cost of borrowing is the interest rate, plus the constraint of the repayment schedule.
Selling shares means the business gets capital without an obligation to pay it back. There is no interest. There is no schedule. The cost is dilution — the original owners now own a smaller percentage of the business — and the obligation to share future profits with the new owners.
When a company decides which to use, the calculation is straightforward: if the cost of equity (dilution) is lower than the cost of debt (interest), it issues shares. If interest rates are very low and the business is highly profitable, debt is usually cheaper. If interest rates are high or the business is losing money, equity is usually cheaper.
This is why you see a flood of stock issuances when interest rates rise. It's not about "the market" — it's about the math.
The very first time a company sells shares to the public is called an Initial Public Offering, or IPO. We'll spend a full week on IPOs and IPO-base trading in Month 9. For now, the only thing you need to understand is: the company isn't selling shares to enrich its existing shareholders. It's selling them to raise capital for the business — to build factories, hire engineers, acquire competitors, or pay down debt. New shareholders are buying a piece of that future capital deployment.
TYPES OF SHARES
You'll mostly hear about three kinds of shares. The first one is the only one that matters for nearly every trader you'll meet.
Common shares are what almost every retail trader owns. They give you the ownership claim, the voting rights, and the dividend rights described above. When someone says "I bought 100 shares of Apple," they almost always mean common shares.
Preferred shares sit between common shares and bonds in a company's capital structure. They typically pay a fixed dividend and have priority over common shares if the company is liquidated, but they generally do not have voting rights and don't participate in the company's growth the same way. Preferred shares trade on exchanges, but most growth-oriented traders ignore them. CAN SLIM-style methodology is built on common shares of growing companies.
Restricted shares are common shares that can't be freely traded yet — usually employee equity that vests over time, or shares held by insiders who haven't satisfied their lockup period. You won't encounter these as a buyer; they show up in filings as a reason a company has more "shares outstanding" than its float.
The "float" is a term you'll see often. It's the number of shares actually available for public trading — total shares outstanding minus restricted insider holdings. We'll talk about float in Month 3, when we cover the "S" in CAN SLIM (supply and demand). Float matters because a small float means each new buyer or seller has more impact on price.
The market is closed today, so let's look at the week ahead — and it's a big one, squeezed into four days by the July 4th holiday.
| Tue 6/30 | Consumer confidence; Nike reports earnings |
| Wed 7/1 | Factory and private-payroll data; new Fed chair Warsh speaks |
| Thu 7/2 | June jobs report — the week's main event |
| Fri 7/3 | U.S. markets closed (Independence Day) |
The jobs report usually lands on a Friday; the holiday pulls it forward to Thursday.
Where we stand: We come in off a split week — the Dow hit a record high on Thursday while the Nasdaq fell 4.6% in a tech selloff. Investor's Business Daily's read is to stay patient: cautious on new buying, but not rushing for the exits, and keeping some cash on hand. Futures reopen Sunday evening, with fresh U.S.–Iran strikes over the weekend likely to set the early tone.
Today's lesson asked a simple question: when you buy one share of Apple, what exactly do you own? Here's the answer in real numbers.
Apple Inc · AAPL · $283.78 close (Fri, Jun 26) · Market cap $4.17T · Consumer tech
Apple has about 14.69 billion shares. Buy one, and you own roughly one fourteen-billionth of the company — and with it a claim on its profits, a vote on certain matters, and a sliver of everything Apple owns. Put a number on the profit part: Apple earned about $8.25 per share over the past year, so your one share carries a claim on $8.25 of annual profit. The market priced that sliver at $283.78 on Friday. The price lurched around all week — Apple dropped Thursday in the tech selloff, then jumped about 3% Friday — but the ownership claim underneath it never moved. That is today's lesson, live.
- Price: $283.78 at Friday's close, up about 3% on the day
- Market cap: $4.17 trillion — the market's total price tag on the business
- Shares outstanding: 14.69 billion, so one share is about 1/14,690,000,000 of Apple
- Your claim on profit: roughly $8.25 per share over the past year (its earnings per share)
- Valuation: about 34× earnings, on roughly $451 billion of annual revenue
- Sector: Consumer technology
This is why the traders we'll study think in businesses, not tickers. The screen price is the market's running guess at what your ownership slice is worth, and it changes every second. What you actually own — a piece of Apple's earnings and assets — changes far more slowly. Learn to keep your eye on the second thing, and the daily noise of the first gets much easier to sit through.
We continue with the basics. Tomorrow's lesson is how shares are created — what actually happens during an IPO, why the first few days of trading are usually treacherous for retail buyers, and what dividends are doing to your total return whether you notice them or not.
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