Share

A Share (also known as a Stock or Equity) is, in the simplest terms, a slice of ownership in a Corporation. Imagine a company is a giant pizza. When you buy a share, you're not just buying a receipt that says “pizza”; you are buying an actual slice. As a part-owner, you are entitled to a portion of the company's profits and have a claim on its Assets. This makes you a business owner, not just a speculator. The more shares you own, the bigger your slice of the pizza. This concept is the bedrock of investing. For a value investor, a share is not a flickering symbol on a screen to be traded based on whims. It is a tangible stake in a real, living, breathing business, with its own prospects, management, and long-term value. Understanding this fundamental truth separates true investing from gambling and is the first step toward building lasting wealth.

Owning a share is far more than just a financial transaction; it's a legal claim that comes with specific rights and protections. When you become a shareholder, you join a partnership with thousands of other owners.

As a part-owner, you have a claim on the company's net worth. This is calculated by taking everything the company owns (its assets) and subtracting everything it owes (its Liabilities). What's left over belongs to the shareholders. Crucially, as a shareholder in a public company, you benefit from Limited Liability. This is a powerful protection. It means that if the company gets into financial trouble or goes bankrupt, the maximum amount you can lose is the amount you invested. Your personal assets, like your house and car, are completely safe from the company's creditors.

Your slice of the ownership pie typically comes with a few key privileges:

• The Right to Vote: Most common shares come with Voting Rights. This allows you to have a say in major corporate decisions, such as electing the board of directors who oversee the company's management. It’s your chance to participate in the company's governance.
• The Right to Profits: If the company is profitable, its board of directors may decide to distribute some of those profits back to the owners in the form of Dividends. As a shareholder, you are entitled to your proportional share of these payments.
• The Right to Assets in Liquidation: In the unfortunate event that a company is wound up and sold off (Liquidation), shareholders have a right to a proportional share of any money left over after all debts have been paid.

Not all shares are created equal. They generally come in two main varieties: common and preferred. Understanding the difference is key to knowing what you're buying.

Common Stock is the type most investors are familiar with. It represents true ownership in a company and comes with the voting rights mentioned earlier. Common stockholders are the ultimate risk-takers and beneficiaries of a company's success. If the company thrives and its profits soar, the value of their shares can grow exponentially. However, they are last in line to get paid if the company goes bust. For value investors, common stock is the primary vehicle for becoming a long-term owner of a great business.

Preferred Stock is a bit of a hybrid, with characteristics of both stocks and bonds. Preferred shareholders typically receive a fixed dividend, which must be paid out before any dividends are paid to common stockholders. They also have a higher claim on the company’s assets in a liquidation. The trade-off for this “preferred” treatment is that these shares usually do not come with voting rights. It’s a more conservative way to invest in a company's equity, offering more predictable income but less potential for explosive growth.

A value investor, following in the footsteps of legends like Benjamin Graham and Warren Buffett, views shares through a unique and powerful lens.

This famous quote from Warren Buffett captures the essence of value investing. The Market Price of a share is its current trading price on an exchange, which can be whipped around by daily news, emotions, and speculation. The Intrinsic Value, however, is the underlying worth of the business itself, based on its assets, earnings power, and future prospects. A value investor's job is to calculate the intrinsic value and buy shares only when the market price is significantly below it. This gap between value and price is known as the Margin of Safety—your protection against bad luck or errors in judgment.

To a value investor, a stock ticker like “AAPL” is just a shorthand for the business of Apple Inc. The focus is never on the wiggling price chart; it is always on the quality of the underlying business. Before buying a single share, a value investor asks questions like:

• Do I understand how this business makes money?
• Does it have a durable competitive advantage?
• Is the management team competent and honest?
• Is it trading at a sensible price?

By treating a share purchase as a purchase of a piece of a business, you shift your mindset from short-term trading to long-term ownership, which is the most proven path to investment success.