MARNOR INVESTMENT PARTNERSHIP LLP
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MARNOR INVESTMENT PARTNERSHIP TECHNICAL/SHARES
INTRODUCTION TO SHARE TRADING
A Share is a share of what exactly? Well, when you buy shares you are buying a share in the ownership of that company. Even a company as big as SHELL is owned by its shareholders. Of course when a company is worth over £125 billion your share of a few hundred pounds is not much. A number of shares worth £1000 is exactly 0.000000008% of that company when its valued at that amount. But a part owner in the business you are.
Companies issue shares so that people can invest in that company. The money they receive from the initial floating of the shares on the Stock Exchange will have been used to fund the business in the early days. Of course unless you buy the shares in the initial issue of them your money will not go to the company but to whoever owned the shares when you bought them.
Companies can get more money by floating more shares. This can be done by a number of different methods the most common of which are Rights issues and subscription issues known as a ?scrip? issue. Rights issues are usually done by splitting shares eg a 2 for 1 rights issue would mean a shareholder having the right to receive 2 shares for each one the currently held. A ?scrip? issue entitles a shareholder to buy more shares at a discount to the present market value.
A company can also reduce the number of shares it has in circulation by buying some of them back. This has the effect of reducing the number of shares while maintaining the value of the company and the value of the remaining shares should increase.
There are 2 ways people can make money from shares. Firstly by owning the shares you will get a dividend usually paid twice a year. The amount of the dividend is usually a reflection of how well the company is doing. Dividends are taxable and have taxed deducted when you receive them. You may have to pay more tax on the dividends if you are a higher rate tax payer. The second way is by the value of the shares you hold increasing. This is more speculative and the value can of course decrease. Some shares have shareholder benefits such as discounts off holidays etc.
If you only have a small amount to invest buying shares in individual companies may not be the best way of having the risk of stock market participation. The risk can be lessened by owning shares as part of a unit trust, an investment trust, investment partnership, or an ISA. These products mean that you can own a share in a trust or group of shares and spread your risk among many companies.
Advantages Disadvantages Share Values Can Go Up Share Values Can Go Down
HOW IT WORKS
Forget the hype, shares are not difficult to understand, even for amateurs. A share is an investment of money made by a person or an organisation into a company to provide it with working capital so it can pay its way or buy new materials. So if you buy a share in BT for say £7, you have lent BT this money to help its business. In return you may expect the value of the share to increase if BT becomes profitable and manages its money effectively, and you might get a perk or dividend ( a share of the profits made each year). However, the company might have a bad year and lose business or waste money on a business idea that does not work; they lose money and your shares may be worth less than you paid.
Shares can be traded on stockmarkets. People can buy shares if they look cheap and sell them when they improve to make a profit. A lot of people make the mistake of buying shares wthout researching their earlier prices and they get them at the top price. If the value of these shares decreases then they lose money. This is a paper loss because it is only realised if the shares are sold. Stockbrokers and Market makers buy large amounts of shares at the best prices they can and sell them to us to make a profit. So the price of the shares can be talked up or raised as demand goes up. You can end up buying a share at a price that is several times higher than its true value in relation to the original company.
For example, a 10 pence share in Vodaphone cost me £3.00 in October 2001 They are worth a lot less now, so in theory I have lost money; but not until I sell the share.
The FTSE 100 is a list of the top 100 companies in the UK based on their valuation through shares. In the main these are usually the top performing companies but with the internet boom there were a lot of companies in there that were making massive losses but their shares were valued at high prices. Each year the FTSE 100 tidy's up the list changing companies so it is always renewing itself. The price on the news FTSE 100 eg 5654 is a relative indication of the value of the UK stockmarket. In mid 2000 the FTSE was above 6500 for some time and years ago it dropped to 4000. The higher it is the better the companies are doing to attract investors in their shares.
The FTSE 250 is the next 250 companies and includes a number of medium and small companies. This is the bread and butter economy slice of the stockmarket and if they are doing badly, our economy is on the skids or suffering from overseas competition.
AIM is the Alternative Investment Market; for smaller companies and new businesses to try out a listing before entering the big arena. If you buy shares on this market you might make a killing or you might lose your shirt if the business bombs.
NASDAQ is one of the American share collections (called indices). Techmark is another UK index of top 100 technology shares. Nuermarket is the German equivalent.
Trading is like gambling; there are lots of sharks to eat your money and you have to bee quick to make any honey !
So in a nutshell: shares are part of a company which has gone public to raise funding. Each share has a price and people buy and sell them, in this proccess the company is raising funds.
THE RISK
Great reward is not without risk and share prices can fall dramatically.
