What is a share?

Today’s post is a short post defining what a share really is, how it comes to be traded on stock market and who can buy it and how you as an investor can make money from it. 

So let’s begin. What is a share? TheGurdian defines share as a divided-up unit of the value of a company. Imagine that BSP is worth K100 million and there are 50 million shares or single units of ownerships as other authorities define, then each share is worth K2. Put it in other way. If you cut BSP up into tiny pieces and ended up having 50 million pieces (shares), each of which cost K2 (prices change daily to demand and supply), than the value of BSP is K100 million (50 million shares x K2).

Each of these shares denotes a part ownership for a shareowner, stockholder, or shareholder, of that company. Stocks are traded on what we call stock exchanges all over the world; the largest is the New York Stock Exchange or NYSE. The stock exchange in Papua New Guinea is located in down town Port Moresby and it is called Port Moresby Stock Exchange (POMSoX).

Stocks are identified by their ticker symbol. For example, Oil Search Limited is identified as OSL in POMSoX and OSH in Australian Stock Exchange. City Pharmacy as CPL and Bank South Pacific as BSP in POMSoX.  

You as an investor can buy a share in companies, or a share of a diversified global portfolio of stocks. Individual Investors can purchase shares for themselves, at a stockbroker of their choice. 

Why do companies issue shares?

One of the major reason why companies issues shares in stock exchanges like Port Moresby Stock Exchange is for them to raise   more capital to expand their business. The company’s shares are listed in stock exchanges where investors like you and I can through our selected stockbrokers and own bit a company. You then become shareholder of that company whose stocks you bought. If you bought BSP shares, you become a BSP shareholder and you will be invited to attend BSPs annual general meetings every year as a BSP shareholder. In the annual general meetings, important announcement such as annual earnings report, change of directors and more are reported to the shareholders. 

Share prices go up and down every day 

What happens in reality is that the share price goes up and down daily.  This could be due to many factors. However two main things drive share prices up and down as father of value investing, Benjamin Graham notes in his all time classic, rather known as bible of value investing, The Intelligent Investor, and the two main factors as being FEAR and GREED. Put it simply, good news drives share prices up and bad news drives it down. 

How do you make money from stock market as a share holder?

There are two ways to money on stock market as a shareholder.

1.      Dividend-Publicly listed companies from time to time declare dividend payments. Your dividend will be determined by the number of share you hold in a company multiplied by the dividend declared.  The greater the number of shares you hold, the higher the amount is in your dividend check.  Some investors who invest for income put emphasis on buying high yielding dividend stocks for dividend. 

2.      Capital Gain-Capital gain is realized when you buy a stock at lower price and the share prices increases to amount higher than you initially bought and you sell your stocks for profit. Say you bought BSP when it was going for K1 per share and eventually, the share price increases to K10 per share. The increase from K1 to K10 is your capital gain. 

Hope you learnt something in this post. If you did, kindly share the article for other Papua New Guineans to know more about shares and stock market.