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ASK THE FOOL

How stock ownership works

Q: Can you explain how stock investing works? If I own 2 percent of a company’s stock and the company earns $100 million, do I get 2 percent of that — or $2 million?

A: If you own a company’s stock, you are indeed a part owner of it, though usually with a tiny stake. You won’t receive your share of its earnings directly, though. Instead, as the company grows more valuable, other investors will want to buy shares, raising the value of yours.

Companies can directly send part of their earnings to shareholders, via dividends. And they can buy back shares, which boosts the value of remaining shares. They might also simply plow money into growing the business, which can encourage other investors and make the share price rise.

Q: Where can my teenagers learn about money and investing?

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A: They can learn a lot from you, if you share and discuss your financial experiences with them — and then help them start investing in stocks a little, perhaps via a custodial brokerage account.

Younger kids can read “Growing Money” by Gail Karlitz and Debbie Honig (Price Stern Sloan, $10); “Go! Stock! Go!: A Stock Market Guide for Enterprising Children and Their Curious Parents*” by Bennett Zimmerman and Kathy Kamel (The Fourth Way World, $18); or “How to Turn $100 into $1,000,000: Earn! Save! Invest!” by James McKenna and Jeannine Glista with Matt Fontaine (Workman, $13). You should also tackle “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money” by Ron Lieber (Harper Press, $16).

MY DUMBEST INVESTMENT

Falling knife

Dear Fool: Talk about catching a falling knife. Nortel Networks, the Canada-based telecom giant, had been trading for around 100 Canadian dollars per share and then started heading south. When shares were at CA$33, I thought, “What a bargain!” and discussed it with my financial adviser, who thought it was a great idea. I bought in, and ended up selling at CA$3 per share before the company went bankrupt. And worse, this all happened in a tax-deferred account. Waah!

This was just another nail in the financial-adviser coffin for me, because I have yet to employ one who ever said to me, “Leon, that is a really stupid investment idea.” They always said my ideas were great. I am a lot wealthier since dumping them and doing my own investing.

The Fool responds: Such losses can be extra annoying when they occur in IRAs or 401(k)s, as you don’t get to use the losses to offset taxable gains, shrinking your tax bill. (But those accounts offer tax advantages, too, such as deferring taxation until withdrawals in retirement — or, with Roth accounts, avoiding taxation altogether.)

A key mistake here was buying into a stock that was plunging, as that typically signals trouble. If your research had suggested that the troubles were temporary, investing could have been worth a shot. But Nortel was struggling, with its cash running out. You’re lucky to have not lost your entire investment.

THE MOTLEY FOOL TAKE

Game On!

Video-game stocks have been on fire lately, and for good reason. The phenomenon of the battle royale genre, which pits many players against one another in a winner-take-all contest, has been bringing new gamers into the fold. Whether it’s the beginning of a longer-term shift or a short-lived fad, many of these newly initiated video-game players will likely stick around as gamers.

One company positioned to greatly profit from this trend is Activision Blizzard (Nasdaq: ATVI), with eight franchises that have produced more than $1 billion each in sales. (These include “Call of Duty,” “World of Warcraft” and “Candy Crush.”) Its growing stable of popular games ensures that its future doesn’t depend on the success or failure of any single title or franchise.

Compelling updates to existing games continue to draw in new players. “Call of Duty,” for example, was originally released in 2003 and continues to be a hit. The latest version, “Call of Duty: Black Ops 4,” is one of the most highly anticipated game releases of the year. Activision recently revealed that the game will incorporate a battle royale mode called “Blackout.”

An even more compelling draw for investors is the exploding popularity of esports, which turns video gaming into a spectator sport. Give this stock some consideration. (The Motley Fool owns shares of and has recommended Activision Blizzard.)