Budding Wolf of Wall St? Or just curious about what all the fuss is about? Here’s your 101 on shares:
So… what are shares?
Well, put simply, shares are a fractional ownership stake in a company.
If you own a company’s shares, you are a part-owner of that company!
Yes yes, we know… that is fricken baller!!
Although, there is a catch. For most publicly traded companies (the ones listed on a share market), the ownership fractions are super small.
We like to think about shares like a pie. One share is one (very small) piece of a pie.
Can that share grow over time?
What are shareholders entitled to?
As a shareholder of a company, you are entitled to:
- A potential share in that company’s profits (normally paid as dividends)
- A vote in cruical business decisions
And ultimately, the opportunity to grow the value of your investment.
This sounds great, what is the catch?
As a shareholder in a company… you are exposed to risk.
If the company underperforms, or goes bankrupt, or otherwise struggles to generate adequate returns for its shareholders, then the shares will likely decline in value.
What this means for you is that you may lose some or all your money: if the pie shrinks, so does your slice.
Are all shares publicly traded?
Ooft, great question. You’re on a roll! (Yes we are sitting here talking to ourselves).
Not all shares are actually publicly traded. Even privately owned companies have shares and shareholders.
Take for example your local bakery: the owners of that bakery would likely be its shareholders, but you can’t go buying those shares on an exchange!
Shares that are publicly listed can be bought or sold on a stock exchange. These are basically a marketplace for shares – think Ebay or Gumtree, but for shares!
In Australia, the largest stock exchange is the ASX (Australian Securities Exchange) and has some big household names listed (think Qantas, Woolworths, Coles, CBA).
Tell me about stock exchanges overseas…
Globally, the two largest stock exchanges are the NYSE (New York Stock Exchange) and the NASDAQ (National Association of Securities Dealers Automated Quotations Systems), which are both based on Wall St.
Currently, the biggest pie on the NASDAQ is Amazon. The company is worth USD$1.38 trillion, and with 498 million slices available, each share is worth $2759 USD (as at 1 July 2020)