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What are company shares?

What Dr. Dr. Money says
Aktien
Shares, or stocks, represent very small portions of a company. By buying them, you purchase a participating interest in the company – and have a stake in its economic performance.
Shares are certificates of participation in a company. In other words: the owner of a share of stock (shareholder) owns a small fraction of a company.

The company’s capital stock is divides into shares

Many of the world’s largest enterprises are organised as public limited companies whose shares can be bought. The list includes Apple, Microsoft, Google, Siemens – as well as Erste Group Bank AG. The value of an individual share depends on how much capital stock has been put up by the founders of the company and the number of shares into which this has been divided. A company’s capital stock includes money, but also fixed assets such as real property or intellectual property (patents, for example).
Example
Let’s say a company has a capital stock of 500 million euros and issues 5 million shares. Each share represents 100 euros of the capital stock. Everyone who buys shares acquires a proportionate interest in the company. He or she becomes a shareholder, or part owner.

How to earn money from shareholdings

Rising stock price
Company shares are traded at stock exchanges. When there is strong demand for a share at the stock exchange, its price will rise. This follows the mechanics of supply and demand (for more about the interplay of supply and demand, see the article "Who sets prices?“)
Example
Let’s say you own 100 shares Erste Group Bank AG. If the dividend for one year is 20 euro cents per share, you will receive 100 x € 0.20 = € 20 as the return on your shares.
Dividend pay-out
Shareholders participate in the profits of “their” company. Usually, they receive their profit share in the form of dividend pay-outs. Dividends are paid out to shareholders once per year. The amount to be paid out as dividend is proposed every year by the management of the company and approved by the annual general meeting of all shareholders.
Example
Let’s say you have bought 100 shares issued by Erste Group Bank AG at a price of € 16.38 per share. With time, the share price rises to € 22.17, and you sell your shares. You originally paid 100 x € 16.38 = € 1,638 for them. Your proceeds from the sale are 100 x € 22.17 = € 2,217. Your profit is € 579.

Share prices move up and down

But the share price may also go down. This happens when more shares are being offered for sale than prospective buyers are willing to buy. As a result, the price of the share will drop. There are many reasons why share prices may come down. For example, an expensive new innovation developed by the company may fail. Or competitors may launch new and superior products. The prices of commodities such as oil may rise, pushing up production costs and hence making production less profitable. Share price trends are also affected by political events, economic forecasts, currency exchange rates and interest rates, as well as developments in the relevant sector of the economy, industry news, and of course the strategy pursued by the company.
Knowledge is useful
Forecasting the fate of a company with 100% accuracy is impossible, but having some knowledge helps. Investors in the stock market have to keep abreast of developments and interpret available information as best they can. But even so, one must always be aware that trading in the markets is done by people. And people do not always react the way you would like them to. So betting on the stock market is indeed akin to gambling.
What are company shares?

What Dr. Dr. Money says

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