subject: Investing in Shares, Part of a Long Term Strategy [print this page] Investing in Shares, Part of a Long Term Strategy
In the world of finance a "share" refers to a unit of account for various financial instruments including stocks, limited partnerships, real estate investment trusts and mutual funds such as exchange traded funds or unit trusts. In certain parts of the world the word share refers to stocks and for all intents and purpose has replaced the word stock altogether.
A share or stock is a document issued by a company, which entitles the holder to be one of the owners of the company. A share can be acquired in one of two ways, it is either issued by the company or purchased on the stock market.
The owner of a share profits from ownership in one of two ways. Firstly, through earnings and secondly, through selling shares. Therefore, the return is dividend plus the capital gain. The owner also stands the chance of capital loss if that trader sells the shares at a price below the purchase price.
Share Price.
A company's stock price is a reflection of perceived value and not necessarily the actual value. For example, companies that experience rapid growth are often traded at a higher value than the company is actually worth. Relentless growth and overvalued share prices are subject to sudden and violent market corrections, such as the 2000 dot-com bubble burst.
Company and market news also affects the price of shares because publicly traded companies are required to report quarterly financial status and earnings. In addition,market forces and general trader opinion also influence stock prices.
Facts about Shares.
Voting rights in certain company issues accompany the ownership of shares.
Historically, the annual returns on shares average about 10%. However, there is no guarantee of returns, and shares can lose value even in the long run.
Share investments can generate returns through dividends, even if the price of the stock falls.
Share Trading.
Every transaction on the stock exchange is carried out through licensed members called brokers. Shares can be purchased through a broker or directly through an online trading system byway of the provider's broker licence. The benefit of having a personal broker hands the responsibility of watching the market and decision making over to a professional. The benefit of using a trading platform means almost anyone can buy and sell shares without a limit on value or volume of transactions.
What are active Shares?
Active shares are those that are traded frequently on a daily basis as opposed to partly active which are traded less frequently. Leading companies on the stock exchange experience high volume of trades, especially companies that are sensitive to economic and political events which result in sudden price movements. The high demand for certain stocks make them easy to trade and are therefore considered active.
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