Stock is a piece of ownership of a company. When a Company needs money, which can be helpful in growing the business, they acquire extra money by selling ownership of the company in form of stocks. So if you were to buy 100% of a company's stock, you would own the whole company. If you own enough stock you also have some decision-making power within the company. Buying stock is a very popular form of investing.
What is a share?
A share is one individual piece of stock. It constitutes very acute percentage of ownership of a company. In recent months, stories of the fabulous returns by an investor must have been heard in the stock markets. Everyone could have also heard horror stories of an investor who even lost his shirt in the stock market. The reason might be that he has not chosen the stock wisely at the time of investment .So the new investors are advised to choose the stock after analyzing it properly. Invest on the stock after proper analysation. An extra zing is being added to your collection of investment. Study after study, it has been analyzed that over the long term, stocks outperform all other assets.
It clearly indicates that more earning can be generated from stocks rather than from bonds. But investor should have a risk-bearing capability in case of investments of tocks. But if you are in for the long haul, so are the potential returns. Concepts of investor need to be clear before he invests in share market.
Stocks are not only for the brilliant. Stocks are far from being rocket science. The strategies you need to know to maximize your wealth and the pitfalls you need to avoid are not beyond comprehension. Even if you feel that you don't have the time, and prefer to entrust your money to a portfolio manager or mutual fund, the least you need to know is which funds are better, how to choose your fund manager, and keep a tab on his performance.
Stocks are not only available for professional investors to invest on, but it is also for new investors who are willing to invest in stock market. A new investor needs to plan out their strategies to maximize their wealth after investing in stock market. He also needs to avoid some pitfalls while investing in share market. If the investor does not want to waste time and prefer to invest his money in mutual funds, he need not have to grab knowledge regarding ‘which funds are better’, ‘how to choose your fund manager’ and ‘how to keep a tab on his performance.
So what is a share?
Any business has a lot of assets: The machinery, buildings, furniture, stock-in-trade, cash, etc. It will also have liabilities. This is what the company owes other people. Bank loans, money owed to people from whom things have been bought on credit, are examples of liabilities. Take away the liabilities from the total assets, and you are left with the capital.
Assets - Liabilities = Capital.
A company contains assets, which include machinery, buildings, and furniture, stock –in-trade, cash etc. Company also contains liabilities, which involve Bank loans, money owed to people from whom things have been bought on credit. Deduct liabilities from assets and company is left with capital.
Assets – Liabilities=Capital
Owner invests the amount in the business, which is called capital. Profits are added to the capital as business grows. Shares or stocks are subdivision of capital. If the capital of company is Rs 10 crores (Rs 100 million), so it could be divided into 1crore(10 million) shares of Rs 10 each. Promoters who started the business hold some of the shares, and the remaining shares are hold by the investors. Investors include general mass of people who are who are involved in regular dealings of share market, mutual funds and other institutional investor.
What does this mean for an investor?
Investors need to realize that owning a share means owning a share in the business. If a common person invests in stocks, he does not invest in a market, but will investing in the equity shares of the company. He will be considered as a shareholder or part owner of the company.
As investor is shareholder of the company, he is entitled to the share of profits generated by assets of the company, or bears the loss if the company is in loss. If the investor owns 100 shares of Birla White Cements, he owns a very acute part of the shares. Since Birla White Cements has billions of shares, shareholder holds the share of its assets, liabilities, profits and losses etc.
Shares owned by the shareholder, means owning share in the business without headache of managing it. Shareholders who hold the shares of Birla White Cements, will earn profit, when the company makes good profits, or bear loss if performance of company declines, as people stop building houses or any other reason such rise of competitors which leads to the decline in demand of Birla White Cement.
What is meant by rise in value?
When the capital of the company is divided into shares of Rs 10 each, then the face value of the share is called Rs 10, When trading of shares begin in shares market, the value of the shares may go up or down, depending on the demand and supply for the stock. When everyone is looking to buy the shares, the price will go up, and if many people wan to sell the shares and nobody is ready to purchase them, then the prices will automatically fall.
Price of the share can be defined as value subscribed for a share in the market at any point of time. So the face value of shares with Rs 10 can be quoted at Rs 55(higher than the face value) or even Rs 5 (lower than the face value). If market value is multiplied by number of shares in the company, the result, which comes out, will be market capitalization. For instance, a company having 10 million shares of a face value Rs 10 and a market value of Rs 30 as on November 1, 2004, will have a market capitalization of Rs 300 million as on November 1, 2004.
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