What are shares? (Brief Summary)
Shares (also known as equities), represent a share of ownership in a company, these shares are listed on the stock exchange for people to view and purchase when they wish to.
When you buy a share, you are buying a small stake in the company, and you have therefore become a joint-owner of the company along with other shareholders.
An annual general meeting is held to keep shareholders (who choose to attend) informed about the current progress and future plans for the company, shareholders then also get to vote to elect the board of directors.
The shareholders with the most shares will have the most influence on the votes. When buying shares, the aim is for it to grow in value overtime as well as to benefit from a share of the company’s profits overtime in the form of regular dividend payments.
As an investor, your main objective is to sell the shares at a higher amount than you paid for it in order to make a profit. Successful investors such as Warren Buffett have been able to make billions by doing this.
Just like with any investment there’s an element of risk in buying shares, this is because shares can fluctuate very suddenly and very sharply, this is also why shares are more suitable as a long-term investment in order to ride out any fluctuations in the market.
Every share carries a different amount of risk which will depend on the individual company as well as what industry it’s operating in.
For example a new small business will probably carry more risk thank a blue chip company(a well-established company with stable earnings and no extensive liabilities). This is because a small company will need to re-invest a large amount of it’s profit back into the business, whereas a much bigger company may offer an attractive dividend pay-out.
Buying Your Shares
You can buy shares through an intermediary such as an online investing service, who will act as a broker between you and the stock exchanges.
You can place your orders online or through the telephone, you’ll need to state how many shares you wish to buy as well as other things such as your preferred type of stock which will include market orders, limit orders, stop-loss orders etc.
These orders will be placed by the authorised stock broker on your behalf usually for a small fee for their services.
Monitoring Your Share Performance
You can monitor the the general trend of your shares, their performance, performance history as well as their dividend history by tracking the relevant epic codes online.
Stock market indices can also be used to monitor the performance of the equity market. The FTSE 100 or Dow Jones industrial average are the main market indices for the New York and London stock exchanges.
An index can provide you with very useful trend information, for example, if the FTSE 100 is rising, it’s an indications that the value of shares traded on the London stock exchange may also rise.
Then when you think the price is right you can sell your shares to make a profit – Generally, the higher the risk the higher the return.