| |
| shares [2025/07/29 18:15] – created xiaoer | shares [2025/07/29 18:16] (current) – xiaoer |
|---|
| ====== Shares ====== | ====== Shares ====== |
| Shares (also known as 'stocks' or 'equities') are your ticket to the game of capitalism. Think of a big, successful company as a giant pizza. You can't buy the whole thing, but you can buy a slice. A share is exactly that: a tiny, single slice of ownership in a public company. When you buy a share of, say, Apple or Coca-Cola, you officially become a part-owner, or '[[shareholder]]'. This ownership stake entitles you to a portion of the company's profits and a claim on its assets. As a shareholder, you can make money in two primary ways. First, if the company does well and its value increases, the price of your share can go up, allowing you to sell it for more than you paid – this is called a '[[capital gain]]'. Second, the company might decide to share its profits directly with you by paying out '[[dividends]]'. For a value investor, a share is not just a blinking number on a screen; it's a tangible piece of a real business. | Shares (also known as [[stock]] or [[equity]]) represent a slice of ownership in a public company. Think of a company as a giant pizza. Each share is one slice of that pizza. When you buy a share, you're not just buying a piece of paper or a digital blip; you're becoming a part-owner, a [[shareholder]], of a real business. This ownership stake gives you a claim on the company's future [[earnings]] and a portion of its assets. If the business thrives and becomes more profitable, the value of your slice can grow. If it struggles, the value can fall. Companies sell these slices to the public on the [[stock market]] primarily to raise money—or [[capital]]—to fund their growth, launch new products, or pay off debt. For an investor, buying shares is the most direct way to participate in the success of the world's most innovative and enduring companies. |
| ===== The Two Flavors of Shares ===== | ===== Why Companies Issue Shares ===== |
| Just like ice cream, shares come in different flavors. The two most popular are common and preferred, and knowing the difference is crucial. | Imagine you own a successful local bakery and want to expand into the next town. You need money for a new oven and a bigger shop, but you don't want to take out a massive loan. What can you do? You can sell a piece of your bakery to friends and family. This is exactly what large corporations do, but on a massive scale. By issuing shares, a company raises money without going into debt. Unlike a [[bond]], which is essentially a loan that must be repaid with interest, selling shares means the company gets to keep the cash. The "price" the company pays is giving up a fraction of its ownership and future profits to its new shareholders. It's a fundamental trade-off: cash today for a smaller piece of a potentially much larger pie tomorrow. |
| | ===== The Two Main Flavors of Shares ===== |
| | Just like ice cream, shares come in different flavors. The two most common types are, fittingly, common and preferred. While you'll most often encounter common shares, it's good to know the difference. |
| ==== Common Shares ==== | ==== Common Shares ==== |
| This is the vanilla of the share world – the most widespread and what people usually mean when they talk about "buying stocks." Owning a common share is like being a citizen of the company. | This is the vanilla ice cream of the stock world—the most widespread and straightforward type. When people talk about "buying stocks," they are almost always talking about common shares. |
| * **You Get a Vote:** Common shareholders have voting rights. This means you get a say in major company decisions, like electing the '[[board of directors]]', who are responsible for overseeing the company's management. It's corporate democracy in action! | * **Ownership and Control:** Holders of common shares are the true owners of the company. They have [[voting rights]], which allow them to vote on important corporate decisions, such as electing the [[board of directors]] or approving a merger. |
| * **Potential for Growth:** Your fortune is directly tied to the company's success. If the company hits a home run, the value of your common shares can soar. Dividends are a possibility but are not guaranteed; the company decides whether to pay them or reinvest the profits back into the business for more growth. | * **Unlimited Upside:** The value of common shares can, in theory, grow infinitely as the company succeeds. |
| * **Last in Line:** There's a catch. If the company goes bankrupt and its assets are sold off ('[[liquidation]]'), common shareholders are the very last to get paid, after creditors, bondholders, and preferred shareholders. It's a higher-risk, higher-potential-reward position. | * **Variable Payouts:** Shareholders may receive payments called [[dividends]], but these are not guaranteed. The company's board decides if and when to pay them. |
| | * **Highest Risk:** If a company goes bankrupt and undergoes [[liquidation]], common shareholders are last in line to get their money back, after bondholders and preferred shareholders have been paid. |
| ==== Preferred Shares ==== | ==== Preferred Shares ==== |
| Preferred shares are a bit of a hybrid, mixing features of shares with the characteristics of '[[bonds]]'. They are less common for the average investor but are important to understand. | Think of preferred shares as a hybrid—part stock, part bond. They offer a unique set of features that appeal to more conservative, income-focused investors. |
| * **No Vote, More Certainty:** Typically, preferred shareholders don't get voting rights. In exchange for giving up their say, they get a more predictable income stream. | * **No Control:** Preferred shareholders typically have no voting rights. They are owners, but silent partners. |
| * **Fixed Dividends:** Preferred shares usually pay a fixed dividend, much like a bond pays interest. What's more, the company //must// pay these dividends to preferred shareholders //before// any dividends can be paid to common shareholders. | * **Fixed Dividends:** They usually receive a fixed dividend payment at regular intervals. The company must pay these dividends to preferred shareholders //before// any dividends can be paid to common shareholders. |
| * **First Dibs:** In a liquidation scenario, preferred shareholders get paid back before common shareholders. This makes them a less risky investment than common shares, but they also tend to have less potential for spectacular price growth. | * **Priority Payout:** In a liquidation, preferred shareholders get paid back before common shareholders. |
| ===== Why Do Companies Issue Shares? ===== | * **Limited Upside:** Because of their lower risk and fixed dividend, the price of preferred shares doesn't usually appreciate as dramatically as common shares. |
| Ever wonder why companies bother selling off pieces of themselves? The answer is simple: **to raise money**. Imagine you have a brilliant lemonade stand that's so popular, there's a line around the block. You want to expand by opening a second stand, but you don't have the cash. So, you decide to sell 50% of your business to friends and family. They give you money, and you give them a stake in the future profits. | ===== What Shares Mean for a Value Investor ===== |
| Public companies do the same thing on a massive scale. When a private company wants to raise a large amount of capital for expansion, research, or paying off debt, it can "go public" through an '[[Initial Public Offering]]' (IPO). This is the first time it offers its shares for sale to the general public on a stock exchange. By selling these ownership slices, the company gets a huge injection of cash to fuel its growth, and investors get a chance to share in that future success. | For a value investor, a share is not a lottery ticket. It is a tangible stake in a business. This philosophy, championed by legends like [[Benjamin Graham]] and [[Warren Buffett]], completely changes how you approach the stock market. |
| ===== A Value Investor's Perspective on Shares ===== | ==== Ownership, Not a Lottery Ticket ==== |
| For followers of '[[Warren Buffett]]' and his mentor Benjamin Graham, the approach to shares is fundamentally different from that of a speculator. | A value investor thinks like a business owner, not a speculator. You don't buy a share because you hope it goes up next week; you buy it because you've studied the underlying company and believe it has excellent long-term prospects. You are becoming a partner in that business. This mindset encourages patience and discipline. If the price of a great company's stock drops, you don't panic. Instead, you might see it as an opportunity to buy more of a wonderful business at a cheaper price. As Buffett says, "Our favorite holding period is forever." |
| ==== Not Just a Ticker Symbol ==== | ==== Intrinsic Value vs. Market Price ==== |
| The most important lesson in value investing is this: **When you buy a share, you are buying a piece of a business.** You are not buying a lottery ticket or a three-letter symbol that wiggles on a screen. Your goal is to become a part-owner in a wonderful business that you understand. This mindset forces you to ask the right questions: Is this company profitable? Does it have a strong competitive advantage? Is the management team honest and capable? You're thinking like a business owner, not a gambler. | The daily fluctuations of the stock market are just noise. What truly matters is the company's [[intrinsic value]]—what it is fundamentally worth based on its assets, earnings power, and future prospects. The value investor's job is to calculate this value and then compare it to the current [[market price]] (the price on the stock market). The goal is to buy shares only when the market price is significantly below the calculated intrinsic value. This discount is called the [[margin of safety]]. It's the bedrock of [[value investing]]—the principle of buying a dollar's worth of business for 50 cents. |
| ==== Finding Value ==== | ===== A Final Word ===== |
| A value investor's job is to calculate what that piece of the business is //really// worth – its '[[intrinsic value]]'. The market price of a share can swing wildly based on news, fear, and greed, but the intrinsic value of the underlying business is far more stable. The secret to successful investing is to buy a share only when its market price is significantly below your estimate of its intrinsic value. This discount is your '[[margin of safety]]', a cushion that protects you from bad luck or errors in judgment. It's like finding a brand-new, high-quality winter coat on sale for half price in the middle of summer. You're buying quality at a bargain price. | Understanding what a share truly represents—a piece of a living, breathing business—is the first step toward becoming a successful investor. It shifts your focus from chasing short-term market fads to identifying high-quality companies you'd be proud to own for the long haul. Forget the frantic trading and hot tips. By thinking like an owner, you can harness the power of capitalism to build wealth patiently and intelligently. |
| ===== Key Takeaways for the Everyday Investor ===== | |
| * **Shares = Ownership:** Don't forget that you're buying a small piece of a real company, with a claim on its future profits. | |
| * **Know Your Flavor:** Common shares offer voting rights and high growth potential but come with more risk. Preferred shares offer fixed dividends and more safety but less upside. | |
| * **Think Like a Business Owner:** Investigate a company before you buy its shares. Don't just follow the crowd or chase hot tips. | |
| * **Price is What You Pay, Value is What You Get:** The ultimate goal is to buy a share in a great business for a price that is less than its actual worth. | |
| |