Stocks

As we stated earlier, the rate of return on a financial investment in a share of stock can come in two forms: as

dividends paid by the firm and as a capital gain achieved by selling the stock for more than you paid. The range

of possible returns from buying stock is mind-bending. Firms can decide to pay dividends or not. A stock price

can rise to a multiple of its original price or sink all the way to zero. Even in short periods of time, well-

established companies can see large movements in their stock prices. For example, on July 1, 2011, Netflix

stock peaked at $295 per share; one year later, on July 30, 2012, it was at $53.91 per share; in 2022, it had

recovered to $199. When Facebook went public, its shares of stock sold for around $40 per share, but in 2022,

they were selling for slightly over $212.

We will discuss the reasons why stock prices fall and rise so abruptly below, but first you need to know how we
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