Shares are one of the most popular ways of investing on the stock exchange. Shares represent a balance between risk (higher than when dealing with bonds, but lower than in the case of derivatives) and the potential gains (bigger than for bonds, but lower than for derivatives).
Shares represent a participation in the share capital of a company. Shareholders have an ownership right on the net assets of the company, proportional to the number of their shares. Shareholders have the right to be informed about company activities, attend and vote during General Shareholders Meetings (GSM) and receive dividends from the company’s profit. On the other hand, when the company’s financials are worsening and it becomes insolvent or files for bankruptcy, the shareholders are the last ones to be compensated for their loss, only after secured creditors and bondholders. It is therefore considered that the risk of holding shares is larger than of bonds, because if bankruptcy occurs bond owners are repaid before the shareholders.
Shares have a nominal value which is a value established through a company’s bylaws. The nominal value of shares is a convention, and it does not reflect the fair value of the shares.
Shares are dematerialized and are electronically traded.
Investing in listed shares is done mainly for dividends and for the capital gains from the price differences, buy and sell. Before buying shares in a listed company, it is advisable to know all relevant information regarding company’s activity, its main shareholders, historical financial performance, the legal framework, etc.
The trading price of shares is influenced by a wide range of factors, including:
- Internal, national and international, political and economic context
- general outlook of the economy and capital market trends
- news concerning the company, such as signing of new contracts, entering new markets, investments, changes in the management, changes in the shareholders structure, financial results, etc.
- analysts' estimates included in their analysis reports
- press articles
- general feeling of the investors and market psychology
- news from company’s field of activity
- technical analysis signals.