Buying Shares

A Basic Guide to Shares

It isn’t so long ago that share dealing was the concern of the wealthy, but these days there are many ways for everyone to get involved in buying and selling stocks and shares. But what exactly is a stock and what, for that matter, is a share?

The stock of a company is its value, assessed by adding up concrete items such as its assets and profits, along with intangible qualities, like the company’s reputation or brand worth. This stock is divided into smaller pieces called shares. 

When a company wants to raise money, one of the ways it can do this is to issue shares. Investors buy shares in the company, effectively buying a piece of the company, and in return, the company receives an injection of investment money which it can use for research, re-investment, debt reduction and so on. 

So why buy a share? There are two main reasons. The first is to profit from what are known as dividends. From time to time, the company will pay out a dividend, or a proportion of its profits, for every share. It is up to the board of the company to decide when a dividend is paid and how much is paid, but if you own shares in a company that regularly pays dividends, you will receive a regular return. 

The second reason is to profit from a rise in the company’s share price. The price can go up or down depending on many factors, including financial results, law changes and wider economic forces. Buying and then selling shares at the right time can net you a profit, although if the price goes the wrong way, you could end up with a loss. 

The prices of shares are listed on a stock exchange and it is important to find out how the exchange works. Some, such as the London Stock Exchange will offer useful guides for newcomers. 

As you would expect, there are many rules and regulations surrounding the buying and selling of shares. For example, shareholder agreements detail your rights as a shareholder and what is expected of you. 

Finally, if you use a broker or take financial advice on shares, it is important to be wary of unscrupulous operators. In the UK, the Financial Conduct Authority (FCA) provide updates and advice for consumers via their website.

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