Shares

What is a share?

A share is an ownership stake in a public limited company. Examples of well-known public limited companies are DNB, Equinor or Tesla. When you buy shares in a public limited company, you become one of owners.

As an owner, you have the right to your share of the value created by the company. As a shareholder, you can also attend the Annual General Meeting and vote. If the company has a dividend policy, you may also receive an annual dividend per share you own.

What is a ‘cyclical share’?

A cyclical share is a share in a company that does well when the general economy does well. And vice versa. These shares normally increase in value in upturns and decrease in value in downturns. Read more about cyclical shares.

What are value shares and growth shares?

When investors and analysts talk, they often distinguish between ‘value shares’ and ‘growth shares’.

Value shares are shares in companies that have turnover and profits that is of a high value today.

Growth shares are shares in companies that are priced high based on investors’ expectations of future turnover and profits.

Read more about shares on Wikipedia.

Why invest in shares?

There are many reasons to invest in shares in a public limited company. Here are three common reasons:

1. Invest to make money

The most common reason for investing in shares is to earn money. Behind an investment is an expectation of a better return than what the bank can give you in the short or long term.

Shareholders* can earn money in two ways:

1. by receiving an annual dividend if, or when, the company does well;
2. by re-selling their shares for more than they bought them for.

A company that is well run will often create value which over time exceeds risk-free interest (bank interest). If the value of the company increases, the shares will normally also increase in value.

As a shareholder, you make a return from the increase in value when you sell the shares. During the ownership period you may also receive a return if the company has a dividend policy, which is when a company distributes parts of its profits to its shareholders, usually on an annual basis.

2. Invest to influence

Some people invest in a company to impact how the company is run. For example, a mutual fund might buy shares in a company to influence the company to move towards more sustainable and socially responsible operations.

3. Invest to help

Some people buy shares in a company to help a friend or a family member create their own workplace, or to expand/save their business.

*shareholder = owner of shares of the company.

How do I know what shares I should buy?

There is no easy answer to this question. What share you should buy depends on who you are, the status of your finances and what risk you are willing to take.

One thing you need to be absolutely certain of, is that your choice should not be random. Get to know the different companies you are interested in, familiarise yourself with what they do and what their future prospects are.

Read our research reports!

If you are not entirely comfortable with reading financial figures and annual reports, use the research reports created by our experienced analysts. You can read our research reports and recommendations here.

Research is better than pure intuition.

What does high risk mean in relation to shares?

Many people associate the word risk with something dangerous, but the word ‘risk’ in the share market is just a way of saying that the values can fluctuate.

• High risk is a way of saying that the value of a share, or a market, can fluctuate a lot.
• Low risk is a way of saying that the value is more stable in normal circumstances.

High risk leads to a possibility of both higher returns and greater losses.

Knowledge gives you better predictability

If you understand why the value of a share, or why the overall market is fluctuating, you then have options to reduce the risk of losses.

One piece of advice is to research the shares you are considering buying. This way you understand what the company does and what it takes for it to earn money.

Another good piece of advice is to allocate your investments between different companies in various industries. This way you are not dependent on a singular company in a specific industry performing well.

Do you find it difficult to understand what a company does, and which companies are expected to perform or not? If so, you might prefer to hand over the investment job to a professional portfolio manager and start saving in an equity fund.

Why do companies issue shares?

Selling shares is one way a company can raise money – selling shares is a source of funding.

A company needs money in order to operate

An idea alone is rarely enough. Companies are in need of capital to start out and to operate. If owners don’t have enough money on their own, they can raise capital by selling shares in their company. If they need further funds at a later stage they can market a subsequent share issue.

Multiple ownership is an alternative to borrowing money

Issuing shares and obtaining additional owners is therefore an alternative to borrowing money. Those who buy shares become co-owners, or ‘shareholders’, in the company. Obtaining multiple owners has its advantages and disadvantages. Owners have one voting right per share and in the General Meeting everyone has a chance to express their opinion on company operations.

The advantage of borrowing is that company founders retain control. The disadvantage of borrowing, if it is at all possible to get a loan, is the need to pay interest. Perhaps for years to come. Companies usually try to avoid such expenses.