According to wikipedia, a share is defined as follows:

A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets (after discharge of all senior claims such as secured and unsecured debt),[2] or voting power, often dividing these up in proportion to the amount of money each stockholder has invested.

This definition has always confused me, largely because it doesn't really correspond to the way that I see stocks treated in real life.

Only a small number of stocks actually pay dividends, which would correspond to "fraction of the company's earnings" from the above definition. Proceeds from liquidation is a rare occurrence, and as quoted above it would only happen after the discharge of debt, which in many cases would leave nothing to the stockholder. In any case, no one buys a stock for the purpose of receiving money from the liquidation of the company's assets when the company folds. Lastly, you have to have a ton of stock in a company to have any voting power. So it seems to me that for the average retail consumer, most stocks provide none of the three things listed in the wikipedia definition - not a fraction of the company's earnings, nor proceeds from liquidation, nor voting power.

So in that case, what is a share, really, to an average retail consumer? In practice it seems like it's just a token that we speculate about. People like to say that somehow the value of a stock corresponds to the value of the company, or the perceived future value of the company. But I see no real reason why that would be true, except for the fact that we believe it to be true. I see no legal, or financial or other practical connection between the value of a share of a company and the company's overall real value. In practice we see the values of many stocks swing wildly - is the real value of the company swinging wildly too?

If anyone can explain to me the gap that I'm seeing here, I would love to hear it. I want to understand how a share of a company is tied to the company's worth, and in what sense a share of a company is really a share of the company, and not some arbitrary and essentially meaningless token that we love to speculate about, much like bitcoin or gold.

  • Comments are not for extended discussion; this conversation has been moved to chat. – JohnFx Jan 15 at 13:47

If (for whatever reason) you're deeply interested in the "true epistemological basis" of what the hell a share is, investigate the history of "stock". Thus, begin with The Dutch East India Company and go from there.

(It's interesting that everyone uses the word "stock" all the time, but few realize what it means/ origin.)

I particularly recommend the book Free Banking in Britain, Lawrence H. White, and any history-of-stock book that starts with the VOC, what about The Corporation, Nick Robins

Note that if you have internalized throwaway blanket statements like

arbitrary and essentially meaningless tokens ..., much like bitcoin or gold

you may struggle with being open-thinking enough to absorb various views on notions like "What the hell is Fiat money anyway?"

  • Thanks for the book recommendations, those look great. For some reason the "true epistemological basis" of what a share is is exactly what I'm curious about, you put it into better words than I had myself. Cheers! – STN Jan 15 at 19:42
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    Dude - my speciality is recognizing epistemological curiosity in others! You are 1000% spot on to question the basis of reality of stock - you will see many posts from me on here where I remind folks that stocks have NO value other than that gained via game theory. Your suspicions are just. – Fattie Jan 15 at 21:28
  • To Fattie - I intend to read "The Corporation" at some point soon because I think it will bring a lot of clarity but before I do I wanted to ask you one more question I've got burning a hole in me. If stocks have no value other than that gained via game theory (and I believe that that is probably true), then why do we all believe that over time, the stock market will always go up? Is it only true because we think it is? Or is it sort of a necessary outcome of an ever-increasing money supply? I can ask this as another question but I suspect that it will probably be closed just like this one. – STN Jan 17 at 6:11

A share is a the ownership of a fraction of a company.
That said - as the average Joe private investor - you will of course hold only tiny fractions of most companies and won't be able to influence the company like a major investor does. With owning a fraction of the company you are entitled to receive a share of their earnings (called a dividend) and a voting power proportional to the fractional ownership of the company (note that there are constructs aimed at reducing the voting power of "outsiders" by issued shares with different power, we will ignore those here).

Owning shares for 1000$ does not give you really tangible benefits. You probably won't go to a shareholders meeting (although here in Germany they send out paper mail invitations for it) and exercise your vote. However, you can assign your voting righht to someone else if you are interested. A share won't feed you but assuming the company does reasonably well you will get a dividend payed out regularly, lets say 5$ per share. This is one of the major reasons to buy shares of a certain company.

If the price fluctuates, the total value of the company is fluctuation as well as it is computed by summing up the value of all shares. However, what implication does this value have? Unless you decide to buy or sell your shares, the market capitalization of a company does not have any implications. Betting on changes in price is another major reason to trade shares.

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