What is a share? A plain-English guide

You hear about shares on the news, at work and from friends, but what exactly is a share? This guide explains it in plain English: what you own when you buy one, how shareholders can earn, why prices move and what the risks are. No experience needed.

A share is a piece of a company

Imagine a business is a cake cut into a million equal slices. Each slice is a share. If you buy one slice, you own one millionth of the business. If you buy a thousand, you own one thousandth.

Companies sell shares to raise money. Instead of borrowing from a bank, a company can offer part of its ownership to the public. The money it raises can be used to open new branches, build factories or develop new products. The people who buy those shares become shareholders, part owners of the company.

Shares are also called stocks or equities. The words are used almost interchangeably.

What owning a share gives you

As a shareholder, you usually have:

• A claim on the company's value. If the company becomes more valuable, your share usually becomes more valuable too.
• A right to dividends, if the company decides to pay them.
• A vote at the company's general meetings on matters such as electing directors, normally one vote per share for ordinary shares.
• Information. Listed companies must publish results and important news for their shareholders.

What you do not get is a say in day-to-day decisions, a guaranteed income or a promise that you will get your money back.

How shareholders can earn

There are two ways a share can reward you.

Capital growth

If you buy a share and its price rises, you can sell it for more than you paid. The difference is called a capital gain. For example, if you buy shares for 10,000 kwacha and later sell them for 12,000 kwacha, your gain before fees is 2,000 kwacha. The figures here are only an illustration.

Dividends

Some companies share part of their profits with shareholders as dividends. A company might announce a dividend of a certain amount per share, paid once or twice a year. If you own 100 shares, you receive 100 times that amount, usually after tax.

Dividends are not guaranteed. A company can reduce or stop them, especially in a difficult year. Fast-growing companies often pay no dividend at all and reinvest their profits instead.

Why share prices go up and down

A share's price is set by what buyers are willing to pay and what sellers are willing to accept. Prices change constantly as people react to news. Things that move prices include:

• Company results. Rising profits tend to push a price up; falling profits tend to push it down.
• The economy. Interest rates, inflation and exchange rates affect almost every company.
• Industry news. A new competitor or change in regulation can affect a whole sector.
• Sentiment. Sometimes prices move simply because people are feeling optimistic or worried.

Over short periods, prices can move a lot for reasons that are hard to predict. That is why most people invest in shares for the long term, over several years rather than weeks.

The risks of owning shares

Every investment carries risk. With shares, the main ones are:

• Prices can fall. You could sell for less than you paid.
• A company can fail. If a company goes out of business, its shares can become worthless.
• You may not be able to sell quickly. Some shares trade rarely, so finding a buyer can take time.
• Currency risk. If you own shares priced in another currency, changes in the exchange rate affect what they are worth in kwacha.

You can reduce, but not remove, some of these risks by diversifying, which means spreading your money across many companies instead of one. An ETF is a simple way to do that.

Shares compared with saving

Money in a savings account is generally steady: the balance does not fall, and you earn interest. Shares are different. Their value moves every day and can fall. In exchange for that uncertainty, shares have historically given investors the chance of higher growth over long periods, though past results do not tell you what will happen in future.

Many people keep an emergency fund in savings and invest only money they will not need for several years.

How to buy shares

Shares listed on a stock exchange are bought through a licensed broker or an investing app. In Malawi, shares in local companies trade on the Malawi Stock Exchange. Shares in many global companies trade on exchanges abroad, such as those in the United States; our guide to investing in US stocks from Malawi explains the options.

Some providers let you buy fractional shares, part of a single share, so you can start with a smaller amount. With Ziki, you can invest in shares from your phone and pay with Airtel Money, TNM Mpamba or USDC. Ziki shows every fee before you confirm, and has a practice mode with virtual money if you want to try before you invest.

Words worth knowing

• Shareholder: someone who owns shares in a company.
• Dividend: a payment from a company's profits to its shareholders.
• Capital gain: the profit from selling a share for more than you paid.
• Listed company: a company whose shares trade on a stock exchange.
• Portfolio: all the investments you own.
• Diversification: spreading your money across different investments to reduce risk.

Key points

• A share is a small piece of ownership in a company.
• Shareholders can earn from rising prices and from dividends, but neither is guaranteed.
• Prices move with company results, the economy and sentiment.
• You can lose money, so invest for the long term and spread your risk.

Ready for the next step? Read how to buy shares in Malawi, or see how Ziki works.