The Motley Fool

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If I own 1 percent of a company’s stock and the company earns $100 million, do I get 1 percent of that, or $1 million?

— P.G., Hickory, North Carolina

A

Not quite. If you own stock in a public company, you do own part of it, but corporate earnings typically don’t get automatically sent to shareholders — at least not in full.

A company can do a bunch of things with its profits. It might, for example, pay down some debt, pay dividends to shareholders, buy back (and essentially retire) some of its own shares, or reinvest in its business by building factories, hiring more workers, buying advertising and so on. It might do a combination of those things, and may just bank the money, too, waiting for opportunities.

All these options can reward shareholders, sometimes even more powerfully than if the money were just distributed as dividends. Shareholders are also rewarded when the company grows and its stock value rises accordingly.

Q

Can you explain “unrealized gains”? — W.F., Warsaw, Indiana

A

When you sell an investment, you’ll usually realize a gain or loss. For example, if you bought shares of Scruffy’s Chicken Shack (ticker: BUKBUK) at $50 each and then sold them three years later at $62, you’ll have a realized gain of $12 per share (less commission costs).

Meanwhile, imagine that you bought shares of Home Surgery Kits (ticker: OUCHH) at $22 apiece and they’re now at $27. If you haven’t sold any shares, you’ve got an unrealized gain (or “paper profit”) of $5 per share. Since you haven’t actually sold the holding, it’s your profit in theory only, and an unrealized gain. It will be realized when you sell.

of any stock trading for less than about $5 per share, as those are often penny stocks that can be easily manipulated.

Understand that timing the market is a dangerous game, as no one can really know exactly when a stock or the overall market has hit a peak or a bottom. Market timers often lose out. Be careful with bitcoin, too, as it has also burned a lot of investors.