By now, you’ve learned what the capital market is and the different financial instruments available.
But one question remains:
What does it really mean to own a stock?
You’ve probably heard people say:
- “I bought shares”
- “The stock price went up”
- “This company paid dividends”
In this guide, we’ll break it all down in a simple way.
What Are Stocks (Shares)?
A stock (or share) represents ownership in a company.
When a company wants to raise money to grow its business, it can sell parts of itself to the public. These parts are called shares.
When you buy a share:
- You become a part-owner of the company
- You are called a shareholder
For example:
If you buy shares in a company listed on the Nigerian Exchange Group, you now own a small part of that company.
Why Do Companies Issue Shares?
Companies issue shares to raise money for:
- Expanding their business
- Building new products or services
- Paying off debts
- Entering new markets
Instead of borrowing money (like loans), they raise funds from investors.
Why Do People Buy Stocks?
Investors buy stocks for two main reasons:
1️⃣ To Earn Dividends
A dividend is a portion of a company’s profit shared with shareholders.
If a company performs well, it may decide to reward investors by paying dividends.
Not all companies pay dividends — some reinvest profits back into growth.
2️⃣ To Earn Capital Gains
A capital gain happens when:
You buy a stock at a lower price and sell it at a higher price.
Example:
- Buy a share at ₦100
- Sell at ₦150
- Profit = ₦50
This is one of the main ways investors grow wealth.
How Stock Prices Move
Stock prices go up and down based on supply and demand.
Prices go up when:
- More people want to buy the stock
- The company performs well
- Positive news about the company
Prices go down when:
- More people want to sell
- The company performs poorly
- Negative news or uncertainty
Types of Stocks
Not all stocks are the same. Here are the main types beginners should know:
Ordinary Shares (Common Stocks)
These are the most common type of shares.
They give you:
- Ownership in the company
- Voting rights
- Potential dividends
However, dividends are not guaranteed.
Preference Shares
Preference shareholders:
- Receive dividends before ordinary shareholders
- Have more stable income
- Usually do not have voting rights
They are considered less risky than ordinary shares, but with lower growth potential.
Listed vs Unlisted Stocks
Listed Stocks
These are shares traded on a stock exchange like the Nigerian Exchange Group.
They are:
- Regulated
- Transparent
- Easy to buy and sell
Unlisted Stocks
These are shares not traded on a public exchange.
They are:
- Less liquid (harder to buy/sell)
- Less regulated
- Usually held privately
Benefits of Investing in Stocks
Stocks offer several advantages:
Wealth Growth
Stocks have the potential to grow your money over time.
Passive Income
Through dividends.
Ownership
You become part-owner of a company.
Liquidity
You can buy and sell shares relatively easily.
Risks of Investing in Stocks
Stocks also come with risks.
Price Volatility
Prices can go up and down quickly.
Loss of Capital
You may lose money if prices fall.
Market Uncertainty
Economic conditions can affect stock performance.
Beginner Mistakes to Avoid
If you’re just starting, avoid these:
❌ Investing without understanding the company
❌ Following hype or rumors
❌ Trying to “get rich quick”
❌ Putting all your money into one stock
Instead:
✅ Start small
✅ Diversify
✅ Think long-term
Real-Life Example
Imagine you invest in a company listed on the NGX:
- You buy shares at ₦50
- The company grows and performs well
- The share price rises to ₦80
- You earn ₦30 per share in capital gains
If the company also pays dividends, you earn additional income.
Why Stocks Matter in the Capital Market
Stocks are one of the most important financial instruments because they:
- Help companies raise capital
- Allow investors to build wealth
- Drive economic growth
They are often the first step into investing for many people.
Beginner Takeaway
Here’s the simplest way to understand stocks:
A stock = ownership in a company.
You make money through:
- Dividends
- Capital gains
But like all investments, they come with risk.
