Stock
What owning a share of a company means, the two ways it can earn you money, price gains and dividends, and why a single company is a risky home for your savings.
Key idea
A stock, or share, is a small piece of ownership in a company. It gives you a vote and a share of any profit the company pays out. You can earn in two ways: the share price can rise, and the company can pay a dividend. Both can also go the other way, all the way to zero.
What it is
A stock, or share, is a small piece of ownership in a company. A company that wants money to grow can split its ownership into shares and sell them, and on a stock exchange those shares then change hands between investors every trading day. Owning shares makes you a part-owner: you get a vote at the general meeting and a claim on any profit the company pays out.
A slice of a company
Imagine a company split into 1,000 equal shares, and you buy 100 of them:
- Your shares: 100 (10%)
- Other shareholders: 900 (90%)
Your 100 shares are 10% of the company; the other 900 shares, 90%, belong to everyone else. You would have 10% of the votes and receive 10% of any profit the company pays out. A listed company is split into millions of shares, so 100 of them are a much thinner slice, but it works the same way.
Two ways to earn
Say you buy 100 shares at CHF 50 each, CHF 5,000 in all, and look again a year later:
- Price gain, CHF 50 → 56 a share: CHF 600.00
- Dividend, CHF 1.50 a share: CHF 150.00
If the price has risen to CHF 56, your shares are worth CHF 5,600: a gain of CHF 600.00, or 12.0%. If the company has also paid a dividend of CHF 1.50 a share, you receive CHF 150.00, another 3.0%, before tax. Together that's CHF 750 on CHF 5,000, or 15.0%. The price gain only turns into money when you sell; the dividend arrives in cash.
The honest caveat
Neither way is guaranteed. Prices fall as well as rise, and can stay down for years: that's volatility. Dividends can be cut or stopped. And if a company fails, its shareholders are paid last, after everyone it owes money to, which often leaves nothing: a single stock can fall to zero.
That's why most of your money shouldn't depend on one company. Owning many at once, for example through a fund, is called diversification: one failure then costs you a small part of your savings instead of all of it.
Swiss note
Price gains on shares you hold privately are generally tax-free in Switzerland, unless the tax office treats you as a professional securities trader. Dividends are taxed as income, and Swiss companies pay them with 35% withholding tax deducted. Buying and selling through a Swiss bank adds stamp duty.
Key takeaways
- —A share is a small piece of ownership in a company, with a vote and a claim on the profits it pays out.
- —You earn in two ways: a rising share price and dividends.
- —Shareholders are paid last if a company fails, so a single stock can fall to zero.
- —In Switzerland, price gains on privately held shares are generally tax-free, while dividends are taxed as income.
Related concepts
Dividend
Part of a company's profit, paid out in cash to its owners.
Diversification
Spread your money so that no single failure can sink you.
Asset Class
Stocks, bonds, cash and real estate each work in their own way.
Risk and Return
More risk buys the chance of a higher return, not the promise.
Price-to-Earnings Ratio (P/E)
What a share price says about earnings, and what it can't tell you.