Shares: becoming a business owner

What is a share?

A share is a title deed (a document proving that you own something). When you buy a share in a company, you become the owner of a small part of that company. It’s like buying a slice of cake: the more you have, the bigger your slice.

Let’s take a simple example. Imagine a bakery worth 1,000,000 euros. The owner decides to split it into 10,000 shares. Each share is therefore worth 100 euros. If you buy 10 of them, you own0,1 % of the bakery and have invested 1,000 euros.

Companies sell shares to raise money to expand, buy equipment or take on staff. When you buy these shares, you are lending your money to the company and becoming a shareholder.

How do you buy and sell shares?

Shares are bought and sold on the stock exchange (a market where buyers and sellers meet, like a fruit market but for companies). You cannot buy directly from the company: you have to go through an intermediary known as a broker (a specialist firm that gives you access to the stock exchange).

The price of a share changes every day depending on demand. If lots of people want to buy a share, its price goes up. If lots of people want to sell it, its price goes down. It’s just like an item for sale: if there’s little stock and lots of buyers, the price goes up.

You can sell your shares whenever you like (during stock market opening hours). If you bought a share for 100 euros and sell it for 120 euros, you make a profit of 20 euros. This is known as a capital gain (the profit made by selling at a higher price than you bought it for).

Where do the profits come from?

There are two ways to make money from shares. The first is capital gain: you buy at a low price and sell at a higher price. The second is through dividends (a share of the profits that the company distributes to its owners, i.e. its shareholders).

Example: you buy 10 shares in a company at 100 euros each (total investment: 1,000 euros). At the end of the year, the company makes a lot of money and decides to distribute 500 euros amongst its shareholders. You receive a dividend of 50 euros. At the same time, the share price rises to 110 euros. You have therefore made a profit of 50 euros from the dividend plus 100 euros in capital gains (10 shares × 10-euro rise).

Risks you need to be aware of

Share prices can fall. If you buy at 100 euros and the price falls to 80 euros, you lose 20 euros per share. This loss is only realised if you sell (otherwise, you wait for the price to rise again).

A company may also go into liquidation (cease trading and close down). In that case, your shares may lose all their value. That is why you should never invest money that you might need in the short term.

Shares are riskier than savings accounts (a simple and secure bank account), but they also offer greater potential for long-term returns. It is important to understand this balance before investing.