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Beginner · Lesson 1 of 8What a share really is
A share is a small piece of ownership in a company. If a company has 1 billion shares and you own 1,000, you own one millionth of it, including a millionth of its future profits.
You can make money from a share in two ways. The company can pay part of its profit to owners as a dividend, and the share price can rise because buyers expect the business to earn more in future.
Prices move every second the market is open because buyers and sellers keep changing their minds about what the business is worth. Over short periods prices are driven by mood and news. Over long periods they tend to follow profits.
Key takeaways
- A share is part-ownership of a real business.
- Returns come from dividends plus price changes.
- Short-term prices follow sentiment; long-term prices tend to follow earnings.
Check your understanding
1. Over many years, what has share prices most closely followed?
- Company profits
- Daily news headlines
- Trading volume
- Interest in social media
Show the answer
Company profits. Over long periods, prices have tended to track the earnings the business produces.
2. Which is NOT a way a shareholder earns a return?
- Dividends
- Price rising
- Interest paid by the company to shareholders
- Both dividends and price rises
Show the answer
Interest paid by the company to shareholders. Interest is paid to lenders (bond holders), not to owners.
Go deeper
- Wikipedia: Share (finance)
- YouTube videos: what is a stock share explained for beginners
- Investopedia: stock
- Moneysmart (ASIC): shares
- ASX: how shares work
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