Shares

A share is a share in the ownership of a company.

What is a Stock?

A share is a share in the ownership of a company. Anyone who buys a share acquires a small part of the company, comparable to a piece of cake. As a co-owner, you benefit from the economic success of the company, but also bear the risk if it develops negatively.

What types of stocks are there?

In Switzerland – as well as internationally – two types in particular are relevant:

Ordinary Shares

Common stock is the most commonly issued stock. As a rule, they grant voting rights at the Annual General Meeting, i.e. for important decisions such as the election of the Board of Directors or capital changes.

One example is the Nestlé share. As a co-owner, you can have a say in issues such as the appropriation of profits.

Preferred Shares

Preferred shares usually do not offer voting rights, but investors often receive financial advantages, such as a higher or guaranteed dividend. In Switzerland, preferred shares are less common than ordinary shares, but they do occur in certain companies.

They are used, for example, in the founding or restructuring of companies. A typical example is a start-up that rewards investors for their higher risk with preferred shares, such as preferential dividend payments or liquidation privileges.

Why Do Companies Issue Shares?

Companies issue shares to obtain capital from investors. This capital is used for different purposes, for example:

Growth: Opening up new markets, setting up additional locations.
Innovation: Development of new products, technologies or services.
Operations and efficiency: Modernization, staff growth or debt reduction.

Shareholders' Rights

As a shareholder, you have various rights granted to you by stock corporation law and the company's articles of association. These include, but are not limited to:

Voting rights at the Annual General Meeting: You can have a say in important corporate decisions, e.g. on the election of the Board of Directors or on corporate measures.
Right to dividends: If the company distributes profits, you are entitled to your share – depending on the number of shares you share.
Right to information: You have the right to be informed about the economic situation and development of the company, e.g. through annual reports.
Subscription rights for capital increases: When issuing new shares, existing shareholders often have the privilege of acquiring additional shares in order to preserve their shareholding.

Obligations of Shareholders

Even though shareholders are usually not actively involved in the company, certain obligations arise:

Respect for fiduciary duty: Major shareholders or those with influence must act in the interests of the company and must not make decisions that harm other shareholders or the company.
Compliance with legal and tax requirements: Shareholders must comply with applicable laws, especially in the area of capital gains and their taxation.
Responsibility for co-determination: Anyone who exercises their voting rights is responsible for the development of the company and should inform themselves accordingly.

Sources of Income: Dividends and Price Gains

Dividends are profit shares that companies distribute to their shareholders on a regular basis (usually quarterly or annually). In Switzerland, an annual dividend payment is common. These payments can be considered additional income.

Price gains occur when the price of the stock rises and you can sell the stock at a higher price than you bought it.

Opportunities and Risks

Opportunities:
Typically, the value of a stock increases as the company grows and is successful. You can benefit from price gains if you later sell the stock at a higher price than you bought it.

In addition, many companies pay dividends – a kind of profit sharing – that you receive as a shareholder.

Risks:
Although equities offer attractive long-term return opportunities, they are also associated with various risks. Among the most important are the market risk, which arises from general price fluctuations, and the corporate risk, which arises from the economic situation of the respective company. Liquidity and currency risks (in the case of foreign equities) can also play a role. In addition, political and regulatory risks can influence the markets.Below is an example of each and a note on how to limit the risk:

Stock investments are subject to various risks that can affect the price and returns.

Market risk arises from general turbulence, such as geopolitical events or recessions, that affect even solid companies; Long-term investing and broad diversification provide a remedy.
Corporate risk concerns factors such as management decisions, scandals or poor business figures that can have a strong impact on the price of an individual company – fundamental analysis, solid balance sheets and the embedding of individual stocks in a diversified portfolio can help here.
Liquidity risk occurs in low-traded assets when positions are difficult to sell at discounts, so you should pay attention to trading volume, prefer liquid securities, and use limit orders.
Currency risk concerns foreign equities, the return of which may be reduced or increased by exchange rate fluctuations; Diversification, currency hedging and monitoring of exchange rates reduce risk.
Political and regulatory risk arises from changes in legislation, trade restrictions, or instability that can weigh on markets and businesses; careful country and industry selection helps limit this risk.

However, these risks can be limited. The most important principle is: think long-term and diversify broadly. Those who only invest in the short term or concentrate their money on a few individual stocks are much more affected by fluctuations. It is better to diversify across different industries and regions. Equally important is the psychological component: many investors sell their securities in panic when prices fall, incurring losses as a result. If you plan an investment horizon of at least five to ten years, you can usually sit out these fluctuations.

How Does Stock Trading Work?

Shares are traded on stock exchanges – in Switzerland, mainly on the SIX Swiss Exchange in Zurich. This is where buyers and sellers meet. The price of a stock is determined by supply and demand: when many people want to buy a particular stock, its price increases. Conversely, the price drops when more people want to sell than buy. You can find more information in the chapter – Stock market simply explained.