Too embarrassed to ask: what is a share?

When people talk about investing, they often refer to putting money into “shares”, or buying “stocks and shares”. But what is a share anyway?

When people talk about investing, they often refer to putting money into “shares”, or buying “stocks and shares”. But what is a share anyway?

Most companies, including privately-owned ones, have shares. But usually, when we’re talking about investing, we mean investing in publicly-traded companies. That is, companies whose shares can be bought and sold on a stock exchange. These are known as “listed” companies. When a company sells shares in itself on the stock exchange for the first time, this is known as “going public”. 

Companies sell shares in themselves for lots of reasons – perhaps to raise money for expansion, or to allow the original founders to sell out. But why would you want to own the shares?

A share represents a sliver of ownership in a company. If you own shares in a company, you are entitled to a share of the profits that the company makes, often in the form of dividend payments. You are also typically entitled to vote at the annual general meeting, for example. So if you believe that a business has good prospects, then you might want to buy the shares so that you can benefit from that bright future too. 

As an asset class, shares are riskier than bonds for a number of reasons. The most obvious one is that if a company goes bust, its shareholders will almost certainly be entirely wiped out, whereas its lenders – the banks and bondholders – may at least be able to salvage some value from the carcass of the business. 

However, to compensate for this added risk, shareholders also have potentially unlimited upside. They get to share in any future profits the company makes. So the better the company does, the better the shareholders do. Bondholders, on the other hand, will benefit from a fixed interest payment plus their money back if a company thrives. But if it becomes the next Apple or Amazon, they won’t get paid anything more than if it enjoys more modest success.  

Shares are also commonly known as “stocks” or “equities”. So when people say “stocks and shares” it means the same thing as saying plain old “shares”. 

For more on investing in shares and how to decide which ones to buy, subscribe to MoneyWeek magazine

Recommended

Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022
Britain’s ten most-hated shares – w/e 13 May
Stocks and shares

Britain’s ten most-hated shares – w/e 13 May

Rupert Hargreaves looks at Britain's ten-most hated shares, and what short-sellers are looking right now.
16 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
High inflation will fade – here’s why
Inflation

High inflation will fade – here’s why

Many people expect high inflation to persist for a long time. But that might not be true, says Max King. Inflation may fall faster than expected – and…
13 May 2022
What the Ukraine crisis might mean for ESG investing
Advertisement Feature

What the Ukraine crisis might mean for ESG investing

The Ukraine crisis has brought many of the issues around ESG investing into sharper focus. Where does the sector go from here?
3 May 2022