Hi All

I need someone with knowledge to tell me what shares are as such.

Say if i brought 200 shares of a company as they were £10 each.

What would that get me?

I dont fully understand why people buy shares.........

Thanks

Matt

Er, you may not realies it, but just about everything is linked to shares. From savings/investment vehicles p(ension, mortgage endowments) right through to the jobs of anyone who works for or is dependant upon a public company.

A share represents a small chunk of ownership of a company. It entitles you to a chunk of the future earnings of the company for as long as your hold the share.

People buy shares because they think the company is going places - that it will grow in profitability and be worth more in the future. This will be reflected in a rise in the shareprice in future years. Some companies can, for periods of time, increase their earnings spectacularly - 10-fold or 100-fold in some cases, and this will be reflected in the shareprice. Dell's shareprice increased 1000-fold between 1990 and 2000.

So if you have a spare grand lying around somewhere, wouldn't you like the chance to turn it into a million bucks in ten years' time? Now maybe you can see at least some of the attraction of buying shares. If not, there's always the lottery...

Thankyou!

Now i do understand most of it, just a couple more please.....

1, If you buy shares in a company, and they start to lose money, or go bankrupt, do you just lose your money, or do you owe any money?

2, If i buy shares today, and the company do earn alot of profit in 10 years, what can i do with it? can i take the "million" back out of the company, say thanks very much and buy things?

Or does it have to stay in the company? if so, for how long? and how do you get your profits from shares?

Thanks

Matt

> 1, If you buy shares in a company, and they start to lose money, or go bankrupt, do you just lose your money, or do you owe any money?

If the company doesn't do well of course the shareprice will fall and your investment will be worth less. Where there's rewards on offer, it always comes with risk. This is true of investment since time begun.

I might be wrong on this, but if a company goes bankrupt, the debtors are paid first out of the amount raised from liquidation, and then shareholders. If you're a shareholder, you should be prepared to write off any losses if the company you invested in goes bankrupt. The skill of the investor is to minimize risk while maximizing potential profits, and each investor has their own way of doing it. The good ones are successful and make money.. the bad ones are not successful and lose money =)


> 2, If i buy shares today, and the company do earn alot of profit in 10 years, what can i do with it? can i take the "million" back out of the company, say thanks very much and buy things?

Or does it have to stay in the company? if so, for how long? and how do you get your profits from shares?

You are free to sell your share at any time. You simply sell your shares at whatever the market price at that time. All it takes is a phone call to your broker, or, even simpler, a few clicks on a website. Some people buy and sell a share several times a day (the daytraders), while others buy and hold them for decades. It all depends on what sort of an investor you are.

Hi GameOver,
I'll give you some information about shares. Split into 3 parts
1) What the hell are shares? (Background information)
2) Investing
3) Some pointers

1) What the hell are shares?
Companies generally start small with a loan from the bank. They grow to the point where they need more money to expand (e.g. to open more stores, pay back bank loans or invest in new technology). Rather than go to the bank they go to the stock market. It's called a public offering or an IPO. The owners keep a percentage of the shares normally 10-20% and sell the rest at a fair price. Imagine they need 100 million pounds they might offer 100 million shares at £1 each they then keep a further 20 million shares for themselves (to represent the value of the business they built up before the IPO) . People buy these shares because the company will pay a percentage of profits to the shareholders.

Companies make profits this is often quoted as earnings per share. They use these earnings to expand the business (plowing money back in). But some of the earnings are used to pay dividends.

So using the example above if the company made a profit of £10 million it would have an earnings per share of 10p. e.g. The number of shares 100 million divided by the profit £10 million.

If the company kept all the profits nobody would've bought the shares in the IPO at £1 a share. So companies pay out dividends. These are a percentage of the profits. So in this example they might pay out 25% of the profits as a dividend e.g. £2.5m or 2.5p per share. So for every share you own they give you 2.5p

At first this seems like a bad investment you put in £10,000 and the dividend is only £250/year. Less money then you get from putting it in a bank. But companies grow.

Lets imagine a 5 year period of strong growth for this example company.
Yr1 - £10m profits, 2.5p dividend (Profits invested in 50 new stores)
Yr2 - £15m profits, 3.75p dividend (25 new stores and expensive ad campaign)
Yr3 - £25m profits 6.25p dividend (buyout a weaker competitor)
Yr4 - £35m profits 8.75p dividend (big push this year)
Yr5 - £50m profits 12.5p dividend

So after 5 years the dividend is 12.5p/share or £1,250, much better than a bank.

But shares can be bought and sold. So we decide after 5 years to sell our shares. But they pay out a massive dividend, make huge profits and most importantly the profits keep on growing. So instead of selling them for the original £1 they would probably be worth £5/share. So we got great (above 5%) dividends from the 3rd year onwards and also the share went up in value from £1 to £5 making a further £40,000 in profit.

The problem is companies can do badly. If profits don't grow every year the share price can tumble. Profits could've fallen and the share only be worth 30p so selling them we would've lost £7,000 and got smaller dividends than putting the money in the bank.

Note that if a company goes bankrupt they pay back the bank first and shareholders last so you basically get nothing back.

2) Investing
You buy shares from a market maker they are the middle man between those who want to sell and those who wish to buy. If lots want to buy the share price goes up and if everyone wants to sell then the price goes down. There is a spread so you might buy at 103p but sell at 98p this spread is the market makers profit.
Market makers mean you can always buy/sell the shares whenever you want.
Every 6 months the company will produce there results stating how much profit they made (or loss they made) and give an indication of expected profit/loss in the future. They also announce the size of the dividend payment if any. If you hold the share when the dividend payment is due you get the money paid as cash into your bank account.

3) Some pointers (Which might save you a lot of cash)
At present a lot of the smart money is out of the stock market (The current share prices are very high compared to the earnings/dividend payments). I would stress you seriously consider the potential risks - if you can't afford to lose 50% of the money you invest then stay out. If your still interested in investing I would recommend you start with an online share broker that allows you to practice with fake money. Then do this for a few months to see how well you would've done.

Don't buy on the dips - If a share drops in price don't see it as an opportunity to buy instead see it as a company in trouble and something to avoid.
Follow the trend - shares at an all time high price have got there due to great potential profit growth they can just keep going up.
When directors sell there shares in the company get worried.
Cut your losses (NEVER buy more of a share you own that has dropped in price - this is called averaging down) instead sell it. a 5% drop in price normally means get out before it becomes a 20% drop.
Run your profits - If it's gone up 30% then keep holding on, some shares have gone up 1,000% and more before.
Diversify - try to hold at least 5 differnt shares.

And Finally Do your own research, don't trust any investment advice from bulletin board (especially share tips) and don't invest money you've borrowed.

Apart from that Good Luck
Andrew

Don't worry too much about dividend.

Companies that are still in the growth stage may want to keep ALL their profits to reinvest them in the business, thereby enabling them to earn even more in future years, which will result in a higher shareprice.

Dividend policy is as different between companies as it is between investors. Some companies in mature industries become "income" shares - that is they are expected to pay out good dividends year after year. Other firms in a growth phase will prefer to retain most or all their profits for reinvesting into the business.

You may think why would anyone want to buy a share if no dividend is paid - what incentive is there for anyone to buy shares in this company if they are retaining their profits and not paying them out? But if earnings are boosted by reinvested profits, the company becomes "cheaper" in relation to its earnings, and the shareprice will follow. That's the job of the investor - to seek out what's "cheap" in the market, wait for the market to recognise that it is fundamentally undervalued.

The key thing about investing in shares is NOT the shareprice, but the link between shareprice and earnings. This is the price:earnings(p/e) ratio, and is a barometer of how cheap or expensive that company's shares are. Actually the market is pretty cheap right now - the FTSE-100's current level is 4800, but this by itself tells you nothing. More important is that the index's p/e is about 14 right now (14 times earnings) which isn't expensive historically. So, while some people are expecting the stock market to collapse, I think it's pretty unlikely unless we have a serious recession and companies' PROFITS actually come under serious pressure.

Earnings are everything. If earnings are increased, a rise in shareprice will follow (or in some cases lead).

If you are serious about investing, a good book or two really is essential. Have a read of one of my posts from a while back here: http://www.housepricecrash.co.uk/forum/ind...?showtopic=2634

Is this Gameover for real?

Okay GO, see what you make of this:

Since the Big Bang, shares are parts of campanies in electric form. Before the Big Bang they were made of paper, but became electrical on computers because, by comparison with the companies, the paper became too expensive. It took the public another 13 years to realise the exact same thing.

Also, before Big Bang, there was nothing, apart from shares of paper.

Shares cost money, and when you pay for them they can get cheaper. When shares get cheaper, people have words for this: crash, slump, correction or retracement are common, as is "oh ******". You should avoid buying shares that get cheaper and only buy shares that get more expensive. This is a great tip.

Shares get more expensive when the electric screens with numbers that refer to your shares get bigger. If you sell when the numbers have gotton bigger life is real sweet. If the numbers get smaller, don't sell cos it means your shares have gotton cheaper. This is bad, unless you enjoy saying "oh ******" a lot and being poor and angry. If you say "oh ******" a lot, it can make the share numbers get bigger which will cheer you up.

Also when shares get more expensive you can sell them for more than what you paid. I call this a "profit", but don't expect others to use this term much. I have found that I only make a profit if I sell when the electric numbers on the screen are larger than when I bought. You might wish to try this.

Happy share buying!