WHAT ARE SHARES?

Prof. de Jager
Example share certificate
 Lecture plan

• Societal purpose of stock exchange

• What is a share?
– Certificate
– BS extract
– Owner of a company?
– Bundle of rights
• How shares are like American football
• Intrinsic value versus market price
• Conclusion
 Societal purpose of a stock
exchange
• To pool capital from many investors in order to fund large
projects

• As a risk mitigation process

• Information efficiency

• To provide liquidity in shares after the initial investment

Article on Vula re. purpose of stock exchange -examinable

BS extract
 Who owns a company?

• What defines or shows ownership?

• Do shareholders own a company?

– If yes, then leads to agency problem

• Maybe not?
 Shareholder rights – SA
companies Act 2008
• Vote at shareholder meetings

• Receive a dividend

• Share in residual at liquidation

Debt, prefs and ordinary
shares
American football and shares

FOOTBALL SHARES

Real activity – players &

coaches and games

Betting market – spectators

betting on the outcome of
games
 Intrinsic value

• Value the real business of a company

• Compare with market price that can be equal, more or

less

We are not advocating investing in good companies. Rather,

invest in undervalued companies.
 Conclusion

• Value investor supports economic growth

• Share = bundle of rights

• Do not mix betting market (Price) with real market

(Value)

• Intrinsic value