What it really means to be a shareholder

The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.

Thankfully, we’re well on our way to changing the perception of what it means to be a shareholder. The fading image is one of red braces, slick-back haircuts and pinstriped suits. But, if we’re not careful, the new picture will just be about four-letter ticker symbols on screens with flashes of red and green, when there’s a lot more to it.

So, let’s dive into what it actually means to be a shareholder.

Tim Cook, Elon Musk, Satya Nadella - these are the names running some of the biggest companies out there. It can sound a bit weird to say you’re a co-owner of their businesses but, if you hold a share of Apple, Tesla or Microsoft, that’s exactly what you are. No matter the size of your holding, your shares represent real ownership in a company and connect you to the fortunes of how well the business does.

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This is why it’s always useful to remember there’s a company underneath the line graphs, charts and flickering numbers. This side of things (the stock market rather than the underlying business) focuses on the potential profits we can make by holding that share - buy low, sell high, and all that - but it overlooks what you’re entitled to, more generally, as a shareholder.

Voting rights: You get to vote on key issues facing the company at annual general meetings (AGMs). It could be decisions on executive pay packages or re-electing the board - just remember that more shares means more votes so big players carry more influence; every vote still counts though.

Dividend income payments: If a company has a dividend policy in place, in which it plans to give some of the profits to shareholders, you’ll have a right to receive these regular payments. Not every company does this and the sums and regularity can change from firm to firm but it can be a nice perk of share ownership where it’s available.

Regular company updates: Listed companies release a whole range of regular reports to let you know how they are getting on, how the accounts look and what they expect to achieve in terms of earnings and business progress. Anyone can keep up to date with these filings but they’re particularly useful for shareholders so check out your company’s investor relations page. You’ll likely see quarterly, half-yearly and annual updates, with maybe a few interim trading updates thrown in.

A claim on future profits: It’s easy to forget but the whole reason companies issue shares is to raise money for projects and strategies that they hope will boost profits. Because share buyers have supported these goals by investing, they get a ticket to participate in the company’s journey. This might seem obvious but it’s worth pointing out the reason companies bring us all on board in the first place.

In an ideal world, we’d snap up a share, keep an eye on the updates, watch it rise and rake in the dividends. But, the shareholder’s journey is rarely so perfect. Companies can stumble or fail, share prices can suffer and dividend income can dry up.

Curiously, as co-owners of these businesses, we can sometimes see the stock market react in ways we might not expect and which don’t seem to reflect the companies we’re backing. If a sector attracts a lot of enthusiasm, you might see share prices race up the page even without a dramatic change in companies’ earnings or forecasts. Alternatively, investors might ignore a sector or group of companies and sap life out of their share prices despite positive business metrics. It’s a fickle world out there and means that we have to make sure we’re backing good companies as well as watching how the market is treating them.

The best investors keep this dynamic in mind and always remember they aren’t just traders of signals on screens, they’re owners. That’s an important realisation to carry with you and means you can look at both sides in the right context and not just feel vulnerable to whatever the market throws at you next.

Important information

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.