Assets Shares ("Equities")
 
 
 
 
 
 
 
 
 
 
 
Shares are the direct route to participating in the risks and rewards of enterprise

Shares are.....
........small slices of ownership of individual industrial and commercial enterprises. BP PLC (more familiarly just 'BP') is one of the UK's largest companies. It has issued some 22 billion shares - all of them owned by somebody or something. If you own one BP share you own one 22 billionth of BP. You have a 'share' of BP. That is why it is called a share.

Shares are also called 'equities' or 'stocks'. Blame the Americans.

More on what you own
Actually, the precise details of what you own, together with the rights and liabilities attached to ownership, are written down somewhere in lawyer-speak. It is possible to have different types of share. They may be 'A' shares or 'B' shares or 'Preference' shares.

Luckily, these 'unusual' shares turn out to be a minority sport. The vast bulk of company shares are ordinary shares. And that is usually their technical title: Ordinary Shares. When we talk about 'shares' without qualification we are invariably talking about Ordinary shares. And Ordinary shares have simple rights. Their owners ('holders'):

  • receive dividends, which is the cash payout a healthy company makes every year out of the profits it has made;
  • elect the Directors (who are actually the people who control the company, but being able to hire and fire them is the next best thing. Some shares are non-voting, which means you can't fire the Directors, but don't let's get into that);
  • receive the proceeds of disposal of the assets of the company if it is wound up.

These three attributes give your share a value.

Markets
Anything that has a value can be bought and sold. That is what equity markets are for. So a share is not only an asset with value. It is also easily tradeable.

Not all shares can be traded on established equity markets. You may have a share in your Uncle Steptoe's refuse collection business, but if you want to sell you will have to find a buyer yourself.

Warnings
The modern share is a wonderfully flexible and functional financial construct. But there are risks:

  • Your share could be removed from the trading lists of a recognised market. Only a risk for small, dodgy companies. But if it happens, how do you sell it?
  • Your rights could be subverted by a majority shareholder directing the company to his advantage and not to yours. This is a big subject. Broadly, you have substantial legal protection on the major stock exchanges.
  • The company could be raided by its directors before you and your fellow shareholders get a chance to fire them. Or without your noticing. Directors
  • Your shareholding could be diluted without compensation. If BP issued 22 billion more shares it would still be the same company but its value would be spread over 44 billion shares instead of 22. So your share would have halved in value.

But do not be frightened
With the great majority of shares that are quoted on reputable exchanges you will come to no harm. In the UK the top 350 companies are a safe haven.

You may think that some form of pooled investment - unit trusts or investment trusts - is the answer. For our views on how to get into equities: Equities: How?

 

 

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