While you might not have the cash to go out and buy out Mark Zuckerberg as majority owner of Facebook, with shares you can get a piece of that digital networking action.
Stocks and shares are very closely related. In fact, people use the words interchangeably.
The stock of a company is broken down into shares.
If you hear “shares of stock,” it may sound redundant, but this is just making clear that the shares are of a specific company, example: Facebook.
“Hey! I just invested in some stock!”
“Woah! Cool! What company did you invest in?”
“I’ve got shares of Facebook!”
If you’ve got shares, congrats! You’re a shareholder.
Shareholders hold shares.
This means that as a shareholder of a company, you own a portion of that company. (You could also say you have “ownership interest,” if you’re into that kind of lingo). You also may have voting rights. And not just the kind you get to exercise at your polling place.
However, there’s a major difference between your vote for your city council members and your voting power as a shareholder.
When you go to vote for Justin Moneypenny for county clerk, your vote carries the same weight as any other person showing up to cast their ballot. As a shareholder, your voting power is proportional to the amount of stock you own. As a general rule, the more you own, the more voting power you have. This means that individual investors usually don’t own enough shares to have personal influence on a company. Billionaire entrepreneurs and activist or institutional investors are making the real voting choices, as they hold the most shares.
But just because you don’t have voting power, it doesn’t mean that your shares aren’t of value. Quite the opposite!
Stocks and shares are represented by something called a stock certificate.
Stock certificates used to be actual pieces of paper. Check out the oldest stock certificate still in existence from the Dutch East India Company, the first company to issue shares as we define them today.
Nowadays stock certificates are almost entirely electronic, or dematerialized, with a truly tiny number of retro shares still locked away in vaults on pretty pieces of paper.
Additionally, stocks are now almost always held in ‘street name’. Don’t worry. This isn’t anything illicit! Though it does have an air of mystery about it, doesn’t it?
This means that your shares are not held directly in your name, instead there are channels to simplify and speed up the process. Holding shares in street name was started in order to cut down on the need to transfer pieces of paper between human hands.
Even before the New York Stock Exchange officially opened, gents started with fancy pieces of paper trading hands under a buttonwood tree in the 1700s.
But we’ve come a long way since then.
In 21st century trading, companies release shares through the DTCC (Depository Trust & Clearing Corporation). The DTCC releases stock to the public through banks and brokers in electronic form. The shares are held under the name Cede & Co., and are held by banks and brokers in accounts FBO you.
FBO = finance letters for “for benefit of.”
When you buy a share of a company you are tying yourself to their financial future. Stock values and share prices rise and fall based on many factors.
But when buying stock there is a risk.
You could lose the value of your investment.
But you can’t lose more than your investment.
As you’ve probably guessed, you can’t just buy shares directly. You’re going to need a broker, someone who is licensed to execute buy and sell orders on your behalf.
And some Bonus Jargon to level up your hacking…
Fractional Shares: This is a nifty concept and accounting function. And it’s a cool function that allows you to invest what you can afford to buy.
Float: Not just for summertime fun on the river and root beer! This is a cool jargon-y term that means how many shares of a company are out there and available to be publically traded, and therefore bought by investors like you and me.
A little pyramid round up of key terms.
Stock – ownership
Share – specific ownership
Shareholder – holder of shares
In Street Name – still belongs to you
Fractional Shares – an accounting function
Your Right to Vote! – constitutionally valid, financially…maybe not.