We talk a lot about purchasing ‘shares’. But what exactly are shares?
When you buy or subscribe for equities issued by a company, you are purchasing a part of that company. This makes you a ‘shareholder.’
Typically you would purchase shares in a company that you expect to grow and become profitable, because that would mean the value of your shares would also grow. However, if the company does not grow in value, or if it does not make adequate dividend payments, the share price may fall. If a company’s performance deteriorates and the share price drops further, the company could fail or get taken over. If this happens the shareholder may not have the right to the return of capital and their shares could become valueless.*
As you can see, shares can be a volatile asset, meaning their value can go up or down more than other assets.
*Note that if a company goes into liquidation, the shareholder will normally only receive money from the liquidator once all of the companies debts have been paid in full and only if any proceeds of the liquidation remain