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Advantages and Disadvantages of investing in shares

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Stock, shares or equity mean the same thing. Share refers to a little part in the ownership of a business/firm concern. Shares are classified into two, viz, the ordinary shares and the preference shares. Ordinary share capital is the foundation of any company’s financial structure. It is otherwise called equity share capital.

Preference shareholders as the name implies are the first to buy shares before others; they are also the first to receive dividends and are liable to get refunds first incase the company goes bankrupt. The preference shareholder, unlike the ordinary shareholder has fixed dividends, whether the company made huge profits or not.

Advantages of investing in shares

There are several benefits derived from investment in shares. Below are some of them:

1. Inflation rate is higher than commercial banks interest rate but lower than equity price appreciation.

2. You are protected from the eyes of the public. Nobody knows your worth except you tell him/her. In other investments, people can easily look at the assets of the business or your property (real estate) and come up with approximate worth of it.

3. The rate of growth is far beyond the bank interest rate.

4. Dividend: This is cash reward given to share holders as part of the profit made by the company at the end of each financial year. It is declared at the annual general meeting (AGM) of the company. The larger the units of your shareholding, the more money you receive at the end of each financial year. There are companies that have yearly dividend policy. Your financial adviser should be able to tell you some of them.

5. Bonus issues: This is free shares given to existing shareholders of a company. Sometimes, company declares bonus instead of dividend or both. For instance, in the third quarter of the year 2007, First Bank of Nigeria declared one-for-one bonus. This means a unit for every unit you already hold. For example, a man who holds 100,000 units previously will be given an additional 100,000 units free after the declaration of the First Bank bonus making the values of his shares 200,000 units.

6. Capital appreciation: Price of shares move up or down responding to the forces of demand and supply. For instance, few months ago there was a high demand of the shares of Benue Cement Company of Nigeria which traded for about N6.00 per share. Due to scarce nature of it and the good performance of the company, a unit of it now costs about N 48.oo This implies that there is about 700% increment in the value of the stock. If you had bought N50, 000 units of the shares at N6.00 per share, it means that you spent 300,000.00 buying the shares. Now, that it costs N48.00 per share, if you are to self your shares, your returns would be 48x50,000,which is equal to 2.4 million naira. Thus your capital has appreciated from N300, 000.00 to 2.4 million naira. Indeed stock business has the potential of making you a millionaire overnight.

Disadvantages of investing in shares

The benefits of investing in share are many but there are few pitfalls to avoid. These include:

1. Crash in share prices: Due to one reason or the other, sometimes share prices drop so much. A discerning investor should know what to do at any point in time.

2. Sometimes companies go into liquidation thereby eroding the investments of ordinary shareholders. For example, some banks in Nigeria that did not meet up with the N25 billion minimum capitals as directed by the central Bank of Nigeria (CBN) died with investors’ money. You must be vigilant to watch over your investment if you consider it important to you.

3. Fraudulent stock brokers: some stockbrokers are unfaithful to their clients. They may collect your money when there is perceived information that the shares of a particular company is a good one and instead of making the transactions in your name may divert the money for their selfish interest, may be use it to make their own investments. When the company has closed her book, they may call you for refund or may embezzle your money like that. You must be careful in selecting your stockbroker.

In case you don’t hare anybody to refer you to a good stockbroker or give you advice on stocks and the capital market, or you want to order for my e-book on "How To Invest Wisely In Shares", call me for assistance on +2347036288612 or e-mail me at esheya@yahoo.ca

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Comments

Sir Josh on November 03, 2018:

please somebody can respond to me with this question ' what are those things investors (shareholders) in ordinary shares lose the issuers (company) gain'

Whitrun Guard on September 27, 2017:

I used to be an adventurer like you, till I took an arrow to the knee.

John from India on July 24, 2017:

shares are a profitable investment tool if one learns the market dynamics thoroughly and is willing to be patient. However most people think share market is a cash cow. They often lose money and never come back again

isaac ndolo on February 23, 2017:

the content is good

taddy on December 30, 2016:

this is the first time I am doing this business and this article really help me thnx.

vaibhav on December 21, 2016:

i m in 12th science. i like the page but i want to basic information about the shares. buy the shares means what we do exactly?

what the company plays role in shares?

krupa on October 21, 2015:

i have understand about the advantages that which give us to know this.And thankyou

mutua on September 28, 2015:

this article has been so help to me.thank you

thabsile sibiya on September 12, 2015:

the article has been of great help , thank you.

lebohang nconse on August 28, 2014:

well the page its so excellent. . . I have learnt a lot about shares and its pros and cons. I am also looking out to start my own business one day after I find my degree on management.

qendy on March 24, 2014:

Good article,it has helped me do my entrepreneurship assignment

Yosef Weyla on December 09, 2013:

It is interesting article and I enjoyed reading it.But you had better written it in depth including references.

doublelift on August 16, 2013:

but league of legends is better

hihihihi on August 16, 2013:

cool article bro :)

Radhika on June 05, 2013:

it was treally good can u tell me the fully details of shares

spancer on December 06, 2012:

good article........ but can you help me know how and when one can invest in share.......

JREX SYLVESTER on November 21, 2012:

ai appreciate this

monicamelendez from Salt Lake City on July 26, 2012:

I only buy shares in companies that I understand which for me, isn't that many companies.

Anthony christian on May 09, 2012:

I love the article but how can i start investing seen i am a novies in the market can you please help me.pls u can contact me thru this number 08034188233 or email me @ tony_okwe247@yahoo.com

Abimbola on April 17, 2012:

D comment is really nice and i want to go in2 stock market too just want to be very sure of the profit

Sani viduka yosu damaturu on March 13, 2012:

I realy appreciate the site

99scilla on February 17, 2012:

Thnx this will help in my commerce assignment!

amy on February 10, 2012:

wow, thanx for having the dedication to write such a detailed article. Its really going to help my commerce assignment. thanku

Holyguy (author) on February 03, 2012:

Hi whatupimsexii,

Thank you very much for reading and commenting on my article. I am very glad to learn that you found the article helpful.

Holyguy (author) on February 03, 2012:

Daer sifiso,

Thank you very much for reading and commenting on my article. Please contact me on esheyaaugustine@gmail.com. I will be very glad to help you out!

whatupimsexii on January 23, 2012:

well good page man..i iz well liking it

sifiso on January 19, 2012:

iam a 21 year old lady. i just started a small business and iam perusing a bachelor of arts degree at the university of zambia. i would like to start investing on the stock market really need information on how to go about it. i need help

Holyguy (author) on April 11, 2011:

That is true but but i wrote the article for both people that are already into investing and novice

chamilj from Sri Lanka on April 04, 2011:

I think disadvantages of investing in shares can be minimised if you select them carefully.I always look fundamentals of the stocks I buy. I never buy stocks on gossip information.