What are shares? – Basic equity investment for beginners
Shares have gradually become commonplace. This is due, among other things, to the fact that interest rates are currently historically low, which means that it is also cheap as never before borrowing money. On the other hand, if you have a savings you want to get interest, it does reverse. It is almost impossible to get interest on your deposits with banks and banks, and there are also negative interest rates in the future, which means that you have to pay interest to keep your savings in the bank.
This unusual situation where people who wish to raise loans are rewarded while those who have a savings are penalized, people get free funds to seek elsewhere to place their money in order to get a reasonable return. Many therefore choose to place the money in the stock market, where it is still possible to get a reasonable return.
You often hear friends and acquaintances talk about buying and selling shares or hearing about trading in shares in various news media, but do you really know what a share is? This question we will answer in this article, where we also briefly deal with the most basic things about trading in shares.
What is a stock really?
If you own a share in a company, you are actually co-owner of the company, even if you own a very small company. So simple is it actually. How much of the company you are going to own depends on how many shares you buy.
When you are a co-owner of a company, it means that as long as you have shares in the company, the company follows up and downs. If the company is doing well, it will also benefit you either in terms of rising stock prices or in terms of dividend, maybe both if you are lucky. However, you can not only buy shares in any company. In order for you to buy shares in a company, the company must be a limited company listed on a stock exchange. In Denmark, typically, NASDAQ OMX Copenhagen, where all the largest Danish companies are listed.
As a shareholder, and thus a co-owner of a company, you also acquire the right to participation when important decisions are taken. When you buy a stock, you typically also get a vote at the general meeting that can be used when making decisions that require the shareholders’ acceptance. However, as a private investor, your influence on the company is often limited as you own a very small part of the business. To get a real impact in the company, you must be a major shareholder, and thus own a much larger share of the company.
Nevertheless, it may be a good idea to attend general meetings as you will have the opportunity to get a deeper insight into the company and its future plans. This gives you a much better opportunity to decide whether you want to remain a shareholder in the company or whether it is wisest to sell your actions.
In very large companies, the shares are divided into A and B shares. This breakdown typically relates to different rights, for example. Owners of an A share have the right to vote at the general meeting while owners of the B share do not have. There may also be a difference in how much dividends the owners of the individual shares receive. Often there is a difference in the price of A and B shares, and if you are not interested in attending general meetings, it is also better to buy the often cheaper B-share. Often you will also see significantly higher liquidity in the B share, ie. That much more deals with the B share, which makes it easier both to buy and sell the stock.
Why does the company issue shares?
Immediately, the company issuing the shares may be the losses, thereby helping to share their profits and assets with the shareholders. For the company, issuing equities is a cheap way to raise capital without having to borrow and borrow money, thus paying interest on the loan. It can therefore be a cheap way to raise capital for the company to expand further.
If the company no longer needs this capital, they also see that they start a share buyback. This means that they buy back their own shares and subsequently cancel them.
Issuing shares is also a way in which the company can spread its risk. Instead of lending money to expand and thus taking the whole risk itself, the risk is spread instead of the many shareholders in the company.