What are Stocks and Shares?
Holding a company's Shares or Stock means that you are one of many owners (shareholders) of a company and as a result are entitled to your share of the companies earnings (profit) as well as voting rights if specified by the constitution. Being a shareholder of a public company does not mean you have a say in the day-to-day running of the business. Instead, depending on the constitution and type of shares owned shareholders will have one vote per share to elect the board of directors and vote on any proposals put forward by the company CEO.
The management of a company are supposed to increase the value of the company for shareholders. In real life if this doesn't happen, the shareholders can vote to have the management removed however individual investors like you and I don't own enough shares to have a material influence on the company. It's really high net worth individuals, banks and large institutional investors who make the decisions. In Second Life this is slightly different as you can't sack the management or the founding avatar, however you can ask the WSE to meet with the company's management to discuss ways of improving their business while also selling your Shares or Stock (At a Profit) as another way to display your unhappiness with management decisions.
We buy Shares or Stock in order to see an increase in the value (known as a capital gain) while also holding on to the Shares or Stock over 3, 6 or 12 or more months in order to receive dividends (A share of the Profit) paid by the company either monthly, quarterly or annually. In Second Life the stock market or securities exchange is only 25 days old and therefore most companies won't report a dividend for at least 2 months as the funds held by the company are being used to expand the business operations in order to generate larger profits in the longer term. Buying Shares or Stocks to achieve an increase in the share price along with dividends is known as Investing or having an Investment. As part of investing, people who invest known as Investors will usually have an Investment Strategy along with an Investment Portfolio
What is an Investment Portfolio? a portfolio is a collection of investments held by an institution or a private individual. An investment portfolio consists of consists of an investor who owns shares or stocks in multiple companies of different sectors (industries) e.g. shares owned in a casino business and a clothing business. Holding a portfolio is part of an investment and risk-limiting strategy called diversification. By owning several assets, certain types of risk (in particular specific risk) can be reduced. It is especially important that you have a diversified investment portfolio when investing in Second Life based companies. By owning shares in multiple companies you are still able to achieve capital growth and receive dividends while also protecting yourself (your exposure) from any 1 company that could be shut down for fraud or due to losing all their money from not generating profit (in real life Bankrupt)
What Investing Isn't: Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a "hot tip" you heard at the water cooler is essentially the same as placing a bet at a casino. True investing doesn't happen without some action on your part. A "real" investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.
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