Welcome to our new 4 in 1. A jargon buster, breaking down things to do with investing in four different ways — in one place. 4 in 1 takes a something to do with investing and breaks it down in one sentence, one paragraph, one image and one short article. This week we’re kicking off with 'What Is A Share Anyway?'
A piece of a company (like Amazon) which you can buy, or sell if you already own a piece.
A company can break itself up into tiny pieces - a bit like Terry’s Chocolate Orange. You can buy a piece of that company for a price and if you do you’ll then become a shareholder of that company. By owning a piece of the company, you’ll then get some of the profits it makes. The price of each share can also go up or down depending on a few factors like if the company is doing well or not. For example, if the Terrys chocolate orange stayed out in the sun too long and started melting, people might value it less and so the price of each piece would go down.
What is a share
A share is a piece of a Company (like Amazon or Apple), that anyone can buy or sell. Now companies such as Amazon or Apple, sell pieces of themselves to raise money to do things like invent new products, build new factories, employ people to work for them or expand to new countries.
By buying a piece of a company you become a part owner of that company. For example, if a company splits itself into 100 pieces and you have 10, well then you own 10% of that company. Typically companies, especially the big ones, such as Amazon or Apple, are split into millions of pieces, so you’ll need a little more than 10 shares to own 10%.
How to buy a share
Companies sell these pieces on what’s known as a stock market. The stock market is a place where you can buy a piece of a company for a price, or sell a piece (if you already own a piece). Now a piece (”share”) is bought or sold in exchange for money. A share can be bought in two ways:
From the company directly - this is normally done when a company first breaks itself up into pieces to sell (known as an Initial Public Offering (IPO)); or
From somebody who already has the share and wants to sell it.
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The price you pay for a share is based on a few things, but the four main ones are:
Cashflow i.e. how much cash the company holds in its bank account;
How much profit a company is making or going to make in the future;
News about the company, good or bad; and, last but not least,
Demand. Whether someone wants to buy the share. While supply doesn’t really change that often, demand can. If it goes higher, so does the price of the share.
The price you pay for a share is your break-even point. For example, if you buy a share for £1, then that is your break-even point. It is important to remember your break-even point because if the price goes above this then you’ll make money when you sell your share (or vice-versa if it goes down).
How you can make money from owning shares
As a part owner of a company, your share is tied to the success of that company. You’re entitled to a slice of the profits a company makes — these are called dividends. You can also make money if the price of your share goes above your break-even point and you sell that share to someone else for a higher price. For example, if your break-even point is £1 and you sell your share for £2, well then you’ve made £1.
Right to Vote
If you own a share you’ll also get the chance to vote on issues about the company. Usually, when a company makes a big decision, they have to speak to everyone who owns a share. For example, say Amazon, no longer wants to sell to customers in the UK and instead wants to only sell to customers in France, then it will need to ask anyone who owns a share if they agree with its decision. Normally the broker who you bought your shares from will be contacted and they will either decide how to vote on your behalf or ask you to let them know how you want to vote.
How to sell a share
This is where investment apps or websites come into the picture. You can sell any share you own, but to do this you’ll need to find a buyer from the stock market. You can do this through an investment app or website (or a phone if you’re old school). There you can sell your share based on the current price people are willing to pay. Now the prices of shares constantly move throughout the day when the stock market is open, which in the UK is 8 am - 4.30 pm.
We’re an investment app, so your money is at risk and can go up or down. This blog isn’t our advice, so please don’t change your plans or buy or sell any of your investments based on it. We don’t know your money situation, your plans for the future or how much experience you’ve got. If you’re unsure you should speak to a professional financial advisor.