What is a share?
The answer
A share is one slice of the ownership of a company. If a company is cut into 100 crore slices and you own 1 lakh of them, you own one ten-thousandth of that company — its profits, its assets, and its mistakes.
Why this costs you money
Almost every new investor makes the same mistake in their first month.
They open the app. One stock is priced at ₹4,200. Another is priced at ₹38. The ₹38 one feels affordable. It feels like there is more room to go up. So they buy it.
That decision is based on nothing.
The price of one share depends on how many slices the company was cut into. That is a decision the company made, sometimes decades ago, and it says nothing about how big the company is or whether it is cheap.
Here is the trap in numbers.
| Company A | Company B | |
|---|---|---|
| Price of 1 share | ₹4,200 | ₹38 |
| Number of shares | 2 crore | 900 crore |
| Size of the company | ₹8,400 crore | ₹34,200 crore |
Company B looks small and cheap. It is 4 times bigger than Company A.
People lose money on this because "the price is low" gets confused with "the price is low compared to what the business is worth". Those are different sentences. Only the second one is an argument.
How it works
When a company is formed, it decides how many shares to create. There is no correct number. A company worth ₹10,000 crore can be split into 10 crore shares of ₹1,000 each, or into 1,000 crore shares of ₹10 each. The company is identical in both cases.
Multiply the two numbers together and you get the size of the company. This is called market capitalisation, or market cap.
Price of 1 share × Number of shares = Market cap
Market cap is the real number. The share price is one half of a multiplication and it is meaningless on its own.
Owning a share gives you 3 things.
- A claim on the profits. If the company pays a dividend, you get your slice of it.
- A vote. One share is usually one vote on matters put to shareholders.
- A claim on what is left. If the company is wound up and the debts are paid, shareholders divide the remainder. In practice this is usually zero, which is worth remembering.
You do not own the company's assets. You cannot walk into a factory you part own. You own a claim, and the claim is last in the queue behind every lender.
What it tells you, and what it does not
A share price does not tell you the size of the company, whether the stock is expensive, how much room it has to rise, or how good the business is.
A share price does tell you one thing, but only at the extremes.
A share trading at ₹3 or $0.40 is usually the record of something that already happened. Either the company issued an enormous number of new shares to survive a crisis, or the price collapsed. That is history, not a bargain. In the United States, a share below $1 for 30 consecutive business days triggers a deficiency notice from the Nasdaq or the NYSE, and a limited period to fix it before the company is delisted.
At the other extreme, a very high price limits who can buy. That matters more in India than in the US, and the next-to-last section explains why.
The decision rule
Never compare 2 share prices. Compare 2 market caps.
And when somebody tells you a stock is cheap, ask one question: cheap compared to what? Cheap compared to its own price last year is not an answer. Cheap compared to the profit the business earns is the beginning of one.
If they cannot finish that sentence, they do not have a reason. They have a feeling about a number on a screen.
Try this now
Sixty seconds, on your own app, with stocks you actually watch.
- Open your broker app and go to any 2 stocks on your watchlist.
- Write down the price of 1 share of each.
- On each stock's page, open the tab called Fundamentals, Financials or Overview and find Market Cap. Write that down too.
- Divide the market cap by the share price. That gives you roughly how many shares exist.
What you should see. The 2 lists have no relationship to each other. The stock with the higher price is not reliably the bigger company. The share counts will be wildly different — one company may have 30 crore shares and the other 1,200 crore, for no reason other than a decision somebody made once.
Do this once and you will never again think a ₹40 stock is cheaper than a ₹4,000 stock.
Three real cases
1. MRF Limited (India) — high price, mid-sized company MRF has long had one of the highest share prices in India, crossing ₹1,00,000 per share. It has never split its stock. It is a good tyre company. It is nowhere near India's biggest company — it is a fraction of the size of Reliance Industries, whose shares cost a tiny fraction of MRF's. The price per share is high because MRF has only about 42 lakh shares in existence, not because the company is enormous.
2. Apple, August 2020 (United States) — the split proves the point Apple split its stock 4-for-1. Every holder of 1 share woke up with 4 shares, each worth about a quarter of the old price. Nothing about Apple changed overnight — same products, same profits, same customers. Only the size of the slices changed. Apple had done the same thing 7-for-1 in 2014. If the share price meant anything, this operation would be impossible.
3. Yes Bank, 2020 (India) — low price, not cheap After its reconstruction, Yes Bank's shares traded around ₹12 and looked like the cheapest bank in the country. But the rescue had created an enormous number of new shares. Multiply the small price by the huge count and the bank was not being valued as a bargain at all. Investors who bought "because it is only ₹12" had not done the multiplication.
The question that resolves it
A novice looks at a stock and asks: what is the price?
An expert looks at the same stock and asks: what am I paying for the whole company, and what does the whole company earn?
That is the entire difference, and it is one multiplication.
What would make this wrong
If share price carried real information, then splitting a stock would change what a company is worth. Companies split their shares often. Study after study finds the business is unaffected — the same profits are simply divided into more pieces.
The honest limit is this: a share price is not completely without information. Extremely low prices signal a damaged history. Extremely high prices reduce the number of people who can trade the stock. But neither tells you whether the stock is worth buying today, which is the only question that matters when you have your finger on the button.
In India
Shares carry a face value printed on them, usually ₹10, ₹5, ₹2 or ₹1. This is an accounting number from the company's formation. It is not the price and it is not the value. Ignore it.
Your shares are held electronically in a demat account, and the record sits with one of 2 depositories, NSDL or CDSL. Your broker is a route to that record, not the owner of it. This matters: if a broker fails, your shares are still recorded in your name at the depository.
Two operations change the share count without changing what you own:
- A split. A ₹10 face value share becomes 5 shares of ₹2. You have 5 times as many shares at one-fifth the price.
- A bonus issue. A 1:1 bonus gives you 1 free share for every 1 you hold, and the price halves. The word "free" does a lot of damage here. You have received nothing. The cake was cut into more slices.
India does not allow fractional shares. You must buy at least 1 whole share.
In the United States
The mechanics are the same, with 3 differences worth knowing.
Shares are usually held in street name — your broker holds them, and the central record sits at the DTCC. The chain is one link longer than in India.
Most US brokers now allow fractional shares. You can buy $50 of a stock priced at $900. This has quietly removed the main reason companies used to split their stock, which is why splits are now rarer than they were.
Some US companies have multiple share classes with different voting rights. Alphabet has Class A shares that vote and Class C shares that do not, trading under 2 tickers at slightly different prices. The economic slice is the same; the control is not.
And there is Berkshire Hathaway, whose Class A shares trade above $700,000 each, because the company has never split them in 60 years under Warren Buffett. It is not the largest company in America. Its Class A shares are simply the least-divided slice on the market.
Where they differ, and what that tells you
In the United States, fractional trading has made the share price close to irrelevant. Anyone can own $20 of a $900 stock.
In India, you cannot. A share priced above ₹1,00,000 is genuinely out of reach for an investor with ₹50,000 to deploy.
That has a real consequence. Very high-priced Indian shares trade in small volumes, because the pool of people who can buy even 1 share is small. Fewer buyers and sellers means the gap between the buying price and the selling price widens, and a large order moves the price more than it should.
So the lesson holds in both countries, with one extra step in India. The share price still tells you nothing about value. But in India, an extreme share price tells you something about liquidity — how easily you will get out. That is worth checking before you enter a position you may need to exit quickly.
Carry this
- A share is a slice, and the number of slices is arbitrary.
- Price × share count = market cap. Market cap is the real number.
- "It is only ₹40" is not a reason. It is a description of a slice size.