What are shares? What happens when I decide to buy a share?
Shares are securities that represent a portion of a company's capital. For example, in Italy, the companies that divide their capital into shares are the joint stock company (Spa) and the limited partnership by shares (Sapa).
Consequently, the purchase of a share brings with it some key elements:
- one becomes the owner, albeit for a portion, of society itself;
- you become part of the so-called share capital of the company;
- certain administrative rights are acquired (it is possible to influence the management of the company) and/or economic-patrimonial rights (dividends are received).
The shares are not all the same: not all have the same administrative or economic and financial rights.
What types of shares are there?
- Ordinary shares. They are the most classic of the types of shares. They have no privileges in terms of distribution of dividends, administrative powers or in liquidation.
- Savings shares. These are special shares issued exclusively by companies listed on regulated markets which enjoy certain financial privileges established by the issuing company. In general, when these shares are bought, some rights relating to the management of the company are lost, but the economic and patrimonial rights increase. In essence, while the possibility of voting in ordinary or extraordinary shareholders' meetings is lost, a privilege is gained in terms of dividend distribution, which manifests itself with a guaranteed minimum or with a minimum difference with respect to ordinary shares.
- Preferred shares. The typology is similar to the previous one: it limits administrative rights by counterbalancing them with privileges in terms of economic and property rights. This class of shares grants the holders a priority right to distributed profits and/or to the repayment of capital in the event of bankruptcy. Ultimately, this is a common stock with some sort of insurance.
- Limited voting shares. As can be deduced from the name, these are shares which are subject to an explicit limitation in the right to vote in shareholders' meetings (administrative law) and which do not necessarily enjoy a financial counterpart.
As a saver, what types of shares can you buy?
In theory, with your savings you can buy any type of share, but your choice is limited by the offer, this is because:
- it is the company that decides the characteristics of the new share issue (and associated rights);
- not all companies are willing to sell part of their capital through the issue of shares;
- from a practical point of view, in order to invest, you need to be aware of the opportunities offered by the market and therefore be informed about the companies that are looking for new shareholders and the conditions of their offer.
And this is where the stock market comes into play: the Stock Exchange.
A small saver has neither the means nor the time to go in search of investment opportunities by knocking on the doors of all the companies scattered around the globe, but all this is possible via an internet connection.
The Stock Exchange has the ability to aggregate demand on the one hand (companies that need capital) and supply (investors who can use their savings) on the other, offering the enormous advantage of simplifying the research process and making public information that otherwise would never have been.
Although the Stock Exchange disseminates information on different types of shares, most of the savings are invested in "ordinary" shares of companies listed on the financial markets.
How do you buy shares?
First, the shares can be bought both on the primary market that on secondary market.
The primary market is the market in which a share is offered for the first time. Let's take an example: remember the the entry of Twitter on the Stock Exchange? Its listing was a prime example of a primary market stock. In the preparation phase of the share listing, the investment bank responsible for the offer - in addition to preparing all the necessary documentation - also plays a fundamental role in the search for the first investors. Basically, after establishing the issue price of the security, the bank offers it to its customers and tests market demand. Obviously in this phase it is the bank itself that deals with the issue and decides who can have access to the security. Often, but not always, a small investor has difficulty gaining access to this market.
Don't worry though, because once the price has been established and the first buyers have been found on the primary market, the security is available on the secondary market, i.e. on that market in which the securities are free to circulate. Compared to the primary market, this market is much more accessible to all types of savers.
ABeyond the type of market (which is not all that relevant), to invest in shares you need to have access to the stock market through a specific intermediary. Here are some examples of how you can buy/sell individual shares directly on the financial markets:
- use a online platform. Thanks to the internet and the development of online banking platforms, it is possible to buy and sell shares with a simple click directly from your own home;
- go to your bank counter trust and ask for execution of your investment;
- rely on one specialized company (for example: a SIM).
From the point of view of costs, the first two solutions are certainly less expensive than the third and, as happens in other sectors, the formula self-service of the platforms Online it is usually cheaper than assistance at the counter.
How much profit can I get from one share?
Now that we have completed the identikit of investing in shares, you may be wondering how truly convenient an investment aimed at this traditional asset class can be.
Let's take the beginning of the twenty-first century as our starting point. Here's how much stocks performed: The chart below represents the performance of the world's leading equity indices, usually represented by the MSCI World Index and the MSCI Emerging Markets Index. If we had bought the emerging markets index in 2000, our investment today would have tripled; for example, having invested €100 we will have had a return of 375! Conversely, a one-euro investment in global equities would have yielded 180 euros today, i.e. about 80% more.
From AdviseOnly blog.
