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
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
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.
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