A share is a part ownership of a business listed on the stock market.
A person who owns shares is called a shareholder. Stocks and shares are not just numbers on a stock screen.
Share prices represent today’s price for a company’s stock.
But what about the price of the business? Does the price of the share accurately reflect the value of the business?
The point I would like to hammer home is this:
If a share is a part ownership of a business, then surely to become a shareholder, it makes sense to analyse a prospective company for investment as if you were going to buy the whole business.
This is true even though a share is a part ownership of a business.
You cannot do partial analysis of a company to reflect a partial stake in a company.
The public’s knowledge about shares
Over the years people have expressed the view to me in various ways that the stock market is a giant casino and that stocks and shares are effectively poker chips to be bought and sold for the thrill of the ride.
An informed, intelligent investor, will see things differently.
An investment is based on incisive quantitative analysis – Ben Graham, The Intelligent Investor
Quantitative analysis means analysing a business, its cash flow, its debts, liabilities, how it makes it money and more.
This is to ensure that:
- You are not gambling, but making an informed decision about your investments
- You do not lose, or at the very least, you minimise the risk of losing your money.
Perhaps this seems like too much hard work.
Perhaps it is easier to gamble.
Why a company issues shares
They do it mainly for money.
They issue a slice, not all, but a slice of their company to be carved up into little pieces called shares.
In return, companies receive cash from investors who buy their shares from a stock exchange.
Companies who issue shares have the right to pay shareholders a dividend, which is a cash amount drawn from the profits that the company makes.
Not all companies pay a dividend and some often do not, especially if they are facing tough economic conditions or want to keep money from shareholders to invest into the rest of the business.
Shares can be bought and sold by investors at any time during the opening hours of the stock exchange on which the shares are listed, usually online through a stock broker’s website.
Share prices and what they represent to value investors
Share prices represent what you have to pay to purchase one share of stock in a company.
The great thing about value investing is that focuses on what the value of the business is worth for each share of stock.
By way of example, if a share price is quoted today at £2.20 per share but by using quantitative analysis you determined the company was worth £4.00 per share, then you have discovered an undervalued business.
For value investors, stock market quotes and share prices represent an opportunity to compare price and value.
The price of the share today against the value of the company today.
Much, much more often than not, a comparison of this kind, after careful quantitative analysis, results in the discovery of a fairly valued or overvalued stock.
Sometimes, an investor will find an undervalued company as compared to the share price.
On these occasions, a share is an opportunity to purchase a stake in a company that is undervalued.
For more on the relationship between the value of a company and its share price, take a look at
Thank you for your interest in The Shares and Stock Markets Blog and good luck with your investments.