What Is A Share?
A share essentially means a part ownership of a business registered on the stock market.
An individual who owns shares is called a shareholder. Stocks and shares do not merely refer to numbers on a stock monitor screen.
Share prices correspond to the present price for a company's stock.
You may ask: What about the value of the business? Is the share price an accurate measure of the worth of the business?
The whole idea I would like to focus on is this:
If a share means part-ownership of a business, then as a shareholder, one needs to analyze a certain company for investment as if one were going to acquire the entire business.
This applies even if a share refers to partial ownership of a company.
Obviously, we cannot do partial evaluation of a company corresponding to that fractional stake in a business.
The public's awareness about shares
For many years, people have voiced out their opinion to me in diverse manners about the stock market being nothing but a huge casino and that shares and stock are practically poker chips to be purchased and traded for the delightful experience.
An educated, smart investor will view things in another way.
Quantitative analysis means evaluating a business, its cash flow, its liabilities, its debts, how it generates money and many more.
The purpose is to ascertain that:
- You do not gamble your money away but make an informed decision about your investments
- You do not lose, or, as much as possible, you reduce the danger of losing your money.
- This may appear like very difficult work.
- If so, gambling is much easier.
Why a company issues shares by Deep Blue Publications Group LLC
The main reason is to make money.
They issue a slice, not all, but a piece of their company to be apportioned into tiny bits we refer to as shares.
In exchange, company gets paid by investors who acquire the shares through a stock exchange.
Companies who issue shares have the obligation to shell out dividends to their shareholders, as cash amounts drawn from the earnings of the company.
Not every company pays a dividend and some usually do not, particularly if they encounter rough financial weather or plan to withhold money from shareholders to plow back into building up or maintaining the business.
Shares can be purchased and sold by investors any time during the trading hours of the stock exchange on which the shares are listed, often online through a stockbroker's website.
Share prices and what they represent to value investors
Share prices symbolize what you need to pay to buy a single share of a company's stock.
The important idea in value investing is that it centers on what the value of the company is worth for every share of stock.
As an example, if a share price is quoted today at £2.20 per share but by using quantitative analysis you figured that the business was valued at £4.00 per share, then you have found an undervalued business.
For value investors, therefore, stock market quotes and share prices provides an occasion for a person to weigh price against value. That is, the current price of the share versus the current value of the business.
However, it is more often the case that this kind of an assessment through meticulous quantitative analysis leads to the discovery of a fairly valued or overvalued stock.
Occasionally, an investor will discover an undervalued company in relation to the share price.
As such, a share is a chance to buy a stake in a business that is undervalued.