What a stock really is
सेयर भनेको के हो? सुरुवाती लगानीकर्ताका लागि सेयर बजार
Before ratios, charts or tips, one question: what are you actually buying when you buy a share? The answer changes how you look at every price on NEPSE.
Start with a momo shop
Imagine you and four friends open a momo shop in Pokhara. It costs Rs 10 lakh to start: the kitchen, the tables, the first month's rent. Each of you puts in Rs 2 lakh. To keep things fair, you split the shop into 1,000 equal pieces - 200 each.
Those pieces are shares. If the shop makes Rs 3 lakh profit in a year, each piece's slice of that profit is Rs 300. If one day someone offers Rs 20 lakh for the whole shop, each piece is worth Rs 2,000. Owning a share means owning a slice of everything the business has and everything it earns - the good months and the bad ones.
A company listed on NEPSE is the same idea, just bigger. Nabil Bank, a hydropower company or an insurance company is split into crores of shares instead of a thousand, and anyone can buy a few. When you buy 50 shares of a bank, you become a (very small) owner of that bank: its loans, its branches, its profit and its problems.
A share is not a lottery ticket and not a number on a screen. It is a piece of a real business. Its price, over time, follows what that business is worth.
From a small shop to NEPSE
Suppose the momo shop grows into a chain of fifty outlets and needs Rs 50 crore to open fifty more. The owners don't want to borrow it all from a bank, so they sell new shares to the public. That first sale is the IPO (initial public offering). In Nepal you apply through MeroShare, the shares are allotted (often by lottery, because so many people apply), and the money goes to the company.
After the IPO, the company's shares are listed on the Nepal Stock Exchange. From then on, when you buy those shares, you buy them from another investor who wants to sell - not from the company. The company doesn't get your money; the seller does.
So why does the price jump around every day?
If a share is a slice of a business, why does its price change every few minutes when the business hasn't changed at all? Because the price on NEPSE is simply the last price at which a buyer and a seller agreed. Today that might depend on news, rumours, fear, excitement, a big investor selling to pay a loan, or a hundred other things that have nothing to do with momos.
An old investing saying puts it well: in the short run the market is a voting machine - it counts how popular a stock is today. In the long run it is a weighing machine - it weighs what the business actually earns.
This is the most useful idea in investing. When the crowd is euphoric, prices run far above what businesses earn - and eventually fall back. When the crowd panics, good businesses sell for less than they're worth - which is when patient investors buy. Every later lesson in this course is about telling those two situations apart.
Two ways an investor makes money
- Capital gain - the price rises above what you paid. Buy at Rs 400, sell at Rs 520: a Rs 120 gain per share (before costs and tax).
- Dividends - the company pays out part of its profit. A Rs 20 cash dividend on a Rs 400 share is a 5% yield, paid while you keep the share.
On NEPSE many companies also give bonus shares (free extra shares) and right shares (the right to buy new shares, usually at Rs 100). They feel like gifts, but they work differently from a cash dividend - lesson 6 explains exactly how.
- Not a fixed deposit. There's no promised return. Prices can fall - sometimes a lot, sometimes for years.
- Not a tip. "My friend's uncle said it will double" is not a reason. A business is the reason.
- Not a number to watch all day. If you own a good business at a fair price, the daily wiggles are mostly noise.
In the next lesson we'll open the hood: how to actually buy and sell a share in Nepal - demat, TMS, brokers, the 10% circuit, T+2, and every rupee of cost between you and your profit.
See it live on MacroLens NP
Everything in this lesson, worked out on real NEPSE data for every listed company - inside the MacroLens NP desk.
Lesson summary
- A share is a small piece of ownership in a real business - its profits, its assets and its problems.
- Over the long run a share price follows what the business earns; in the short run it follows what people feel.
- Companies sell new shares in an IPO (the primary market); after that, investors trade them with each other on NEPSE (the secondary market).
- You make money two ways: the price rising (capital gain) and the profits paid out (dividends).
Education only, not investment advice: nothing here tells you to buy or sell any share. Investing carries risk - you can lose money. Examples use made-up companies unless a real one is named.