By buying shares, investors become part of a business owner, which comes with certain rights and responsibilities. Typically, investors invest in stocks to grow wealth through a rising share price or to generate additional income in the form of dividends. This web page explains what stocks are.
A share is a security with which you own a piece of property in the hands of a company. You benefit from this in the form of dividends or if the stock price rises. Buying a stock also gives you the right to vote in the company’s shareholder meeting. In addition, you typically get priority buying when the company issues new stock.
A share is proof of participation in the equity of a company. As a result, a shareholder is co-owner of the company for the percentage that he holds. A share is normally associated with voting rights and you as a shareholder can vote at the shareholders’ meeting. The more shares you own, the greater your say. In addition, a shareholder is in principle entitled to a dividend if the company pays it out. If the business results are good at the end of a period, the company can choose to distribute (or part of) the profit to its shareholders in the form of dividends. When business results are not good, companies usually lower their dividends or pay no dividends at all.
A company is not obliged to distribute the profit as a dividend, but can also choose to invest the profit. In particular, growth companies hope to grow faster by investing their profits, which is ultimately in the best interest of their shareholders. Investors who invest in these types of growth stocks are not interested in the dividend but hope to get their return with a price gain on the stock. The value or price of a share is determined by various factors, such as supply and demand, dividends, economic and business developments, and the political climate.
Type of shares
- Regular shares are the ordinary voting rights of a company. Shareholders are normally entitled to one vote per share and only earn dividends after the management of the company has been approved.
- Preference shares entitle the shareholder to a fixed periodic income (dividend), but usually have no voting rights or limited voting rights.
Opportunities in investing in stocks
- Capital growth
- Income from dividends
- Risk of investing stocks
- Risk of loss of capital
- Market risk
- Volatility risk
- Sector-specific risk
- Share specific risk
- Timing risk
- Unlimited loss in short selling
- Currency risk
- Increase in margin requirements
- Liquidation risk
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