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Investment - September 27, 2022

3 Biggest Misconceptions About Being a Shareholder

There are many new investors in the stock market that are having misconceptions regarding their roles as a shareholder. This has set an unrealistic expectation for them, for example, most of them think by owing a portion of a company they are automatically the boss.     

A Schwab survey found that the global pandemic brought about several economic uncertainties, market volatility, and the emergence of a new generation of investors.

Around 15% of all active stock market investors claim to have started investing in 2020. And not all of them are young and preoccupied with the newest hot stock.

However, many of them still share common misconceptions about the advantages their percentage of ownership means as a shareholder. Let’s take a look at a few of these misconceptions most shareholders have.

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1. Thinking buying stocks is a fast way to become rich

Buying stocks will never make you rich overnight. Foremost investor Warren Buffet once said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”

It is not important for a shareholder to know if a company will pay dividends while trying to maximise the value of their shares.  

Not all companies pay dividends. While in some, the amount of the paid dividends lowers the price of the stock.

2. Thinking it automatically makes you the boss

Do not think that once you have invested in a company, you can enter the corporate offices with your share certificates and order people around.

Investing in a company as a shareholder means you have kept your trust in its management and how it responds to various circumstances as a stockholder.

If you are unhappy with a company’s management, you can always sell your shares, but you can’t dismiss anyone.

Know that you are not the only one concerned about a company’s stock price. Many top corporate executives likely own as many shares, if not more, than you do.

According to the company’s April Economy and Personal Finance study, 58% of people own stocks.

This is not a statistically significant increase, although it is a little bit higher than the 55% and 56% measurements from 2020 and 2021, respectively.

3. Thinking all stocks give you immediate voting rights

Not all stocks allow for voting. Shareholders can invest in a company using two different forms of stocks. These include common and preferred stocks.

While common stock typically grants shareholders one vote per share owned, a preferred stock typically does not.

If your stock has voting rights, you can choose the directors who will run the firm even though you cannot manage it directly with your shares.

Holding a common stock doesn’t give you overall authority over the company, however, you still have some influence on a few departments.

According to the Scientific Publisher, “the board of directors is not only the decision-making body of the company’s operation but also the permanent authority of the shareholders”

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