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· Posted on
July 1, 2021

Enough is enough! What is a share?

Before you invest in shares, we'll help you understand what they actually are - this one is on the house.

What's the key learning?

  • A share is a small percentage of a company that you can own
  • Shares can go up and down in value - based on supply and demand of that share.
  • All shares are listed on a stock exchange (ie a centralised location)

NAH FOR REAL, TELL ME WHAT A SHARE IS AND HOW I CAN GET IT

When you invest in a share on the sharemarket, you are actually purchasing a tiny sliver of ownership in a public company.

This also means you may be eligible to receive dividends and you even may have a vote in some company decisions.

Yep, a cool $150 and you could become a part-owner of Apple! I'm the captain now, Tim Cook.

Why do companies want to give a piece of their business to a random like me?

Shares are an important part of the global economy because it allows companies (like Apple or Netflix) to raise money for their business operations. In exchange for a piece of the company, you provide them with money.

The money that you give to these companies helps them continue to grow the business.

Here's how it works:

Sarah's Wild Shoes sells vintage shoes globally and has just noticed a huge increase in sales. In order to pay for new stock, she needs to raise money.

There are currently 51 shares of stock in her company - but when she lists the company on the Australian Stock Exchange (ASX), she offers another 49 shares for purchase (which means there are now 100 outstanding shares).

As a believer in the business, you want to buy a slice of the Sarah's Wild Shoes, so you and a few friends purchase 49 shares in Sarah's Wild Shoes from the ASX.

Since you and your friends now own 49 shares (out of the 100 shares outstanding), you will own 49% of the company and represent 49% of the company's market capitalisation. If the company continues to grow, you'll see the value of your shares grow too.

Ownership of shares in Sarah's Wild Shoes - that’s going straight on the resume.

But remember, the stock market is fickle - and there is no guarantee that the company you invest in will rise.

So only invest an amount of money which you could afford to lose. And do your own research (preferably away from TikTok).

If you’re looking to buy Australian shares, then a great place to start is Superhero or CommSec’s Online Share Trading Platform.

If you’re looking to buy US shares, then you should look at eToro or SelfWealth.

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