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World 0 · Start Here · lesson 4 · level 1

Owning a slice of a company

A share is one small, equal slice of a company, so owning shares makes you a part-owner whose slice can rise or fall in value.

In one line

What if you could own a tiny slice of the company that makes your favourite biscuits?

Explained simply

Imagine a pizza cut into 8 equal slices: if you own 2 slices, you own a quarter of the pizza. A company can be cut into thousands or even millions of equal slices called shares, and owning some makes you a part-owner. If people later want that company's shares more, your slices can be worth more, but they can also be worth less.

The lesson

A share is one equal slice of a company, and someone who owns shares is called a shareholder, a part-owner of the business. The share price is set by buyers and sellers on an exchange, so the value of your shares rises and falls with it, and some companies also pay part of their profit to shareholders as a dividend. In India shares trade on NSE and BSE, in the US on the New York Stock Exchange and Nasdaq, and in Japan on the Tokyo Stock Exchange, where shares are usually bought in units of 100. People often say stock to mean the same thing, so owning stock means owning shares.

A worked example

Illustrative example: owning 2 of a pizza's 8 slices is owning 25% of it (2 divided by 8, times 100). In the same way, if a biscuit company is split into 1,000 equal shares and you own 10, you own 1% of the company (10 divided by 1,000, times 100). At a share price of 100 rupees, your 10 shares are worth 1,000 rupees (10 times 100). If the price rises to 120 they are worth 1,200 rupees (10 times 120), and if it falls to 80 they are worth 800 rupees (10 times 80).

The same idea at four levels

1. Beginner. A share is a small, equal slice of a company.
2. Foundation. Owning shares makes you a shareholder, a part-owner of the company.
3. Intermediate. Your shares are worth the number you own times the share price, which changes every trading day.
4. Advanced. Some companies pay part of their profit to shareholders as a dividend, but they do not have to.
5. Expert. A share price reflects what buyers and sellers expect about the company's future, so it can fall even while the company is doing well today.

Mistakes to avoid

• Thinking a famous company's share price can only go up.
• Thinking one share lets you run the company, when it is one tiny slice among many.
• Forgetting to multiply by the number of shares when working out what your shares are worth.

Goal of this lesson: Explain what a share is, what owning one means, and where shares trade in India, the US and Japan.