What is a stock

Shares, also known as stocks or equities, are a piece of the ownership interests in a company.

When establishing a company, the owners would typically have to raise money investors who then in return get some shares. As such, a share is divided-up unit of the value of a company. At inception, most companies have a nominal share price of 50 kobo, so if it raises N100 million, it will have 50 million shares in issues. It is the price of those shares that will no fluctuate in response to market conditions and the overall value of the company.

As part-owner, you have a say in how that business is run and also entitled to a share of the company’s profits and net assets in the event of a liquidation. How much of those profits you can lay claim as well as influence on the company will depend on the amount of shares you own relative to the total number of shares issued.

When buying shares, you expect to make money in two ways; either the values of the shares go up or the company pays out a dividend (a portion of profits). However, it is important to note the share price may go down or even become worthless and the company may not pay any dividends either because it has made a loss or prefers to retain the profit in the business for future expansion.

Stocks are the backbone of a good investment portfolio and have proven to outperform every other form of investment in the long run.


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