Beginner’s Guide To Investing In Asia (#2): What Is A Stock?
WHAT IS A STOCK?
The Stock Ticker Is Not A Stock Ticker
“p.s. A share and a stock are just interchangeable term.”
What are we actually buying when we purchase a stock? Are we merely buying a stock ticker that move up and down every second?
In fact, a stock is much more than that. A stock or share, is a part-ownership of a company. That means that when you buy a stock, you are becoming a shareholder of the company behind the stock ticker. If you have invested in the stock of Telekom Malaysia or Singapore Telecommunication, you have in fact turned into a shareholder of these companies. This means that you are entitled to a percentage profits that the companies are generating.
For example, if you have bought 100,000 shares of Airasia Bhd at RM 3.00, it means you have invested (100,000 x 3.00) RM300,000 in the company. In June 2017, Airasia has about 3.34 billion shares outstanding. This means that the company’s ownership is divided into 3.34 billion portion and you own 1,000 portion of that total. Thus, you are a (100,000 / 3.34 billion) 0.003% owner of Airasia Bhd. So, all the profits that Airasia Bhd made in the future, you are legally entitled to 0.003% of them in the future.
Thus, we should view our investment in stock as a part ownership of the company. Behind each stock ticker is a business and by investing in it, we have become a business owner. We will be taking part in the growth and earnings of the company in the future.
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