Foundations
What a share actually is
A share is a legal claim on a company's future profits and assets — not a ticker, not a price, and not a bet on what other people will pay next week.
The claim, not the ticker
When you buy a share you are buying a fractional claim on a real business: its profits, its assets after debts, and a vote on who runs it. The ticker is just the label that claim trades under.
That distinction does the work in everything else you will read here. A company with 15 billion shares outstanding and $100bn of annual profit earns roughly $6.67 per share, and your claim is worth whatever a share of that stream is worth — regardless of what the quote does on any given Tuesday.
What ownership actually entitles you to
- A residual claim on profits. Employees, suppliers, lenders and tax authorities are paid first. Shareholders own what is left — which is why equity is both the most rewarding and the most exposed claim on a business.
- A claim on assets in a wind-up, again only after every creditor.
- A vote, usually one per share, on directors and major decisions.
- Sometimes a dividend — a share of profit paid out rather than reinvested. A dividend is a decision, not an entitlement.
Why the price moves when the business did not
A share price is the price of the last trade, and trades happen for reasons that have nothing to do with the business: an index fund rebalancing, a fund meeting redemptions, someone needing cash in March. Over a day, price is mostly other people's circumstances. Over years, it tracks what the business earned.
This is the single most useful idea in investing, and it is why most of what Pythia scores comes from what a company reported rather than from what its price did. Not all of it: the Momentum pillar is 15% of the Pythia Academic Score and is made entirely of price, and every valuation ratio divides a reported figure by the price. The point is not that price is ignored — it is that price is one input among many, and never the thing being explained.
Try it on the arithmetic
The reason ownership of earnings matters more than the daily price is that earnings compound and quotes do not. Change the rate and the years and watch how little of the final figure is the money you started with.
Compounding calculator
Value after 30 years
$100,627
$10,000 of that is what you put in; $90,627 is what the rate did with it.
Nominal, before tax, costs and inflation, and assuming the rate never varies — which no real return does. The shape is the lesson, not the final figure.
What this means for reading Pythia
Every score on a company page is an answer to a question about the business — how profitable, how indebted, how fast growing, how expensive relative to what it earns. None of them predict next week's quote, and any tool claiming to should be treated with suspicion.
Check yourself
3 questions. Nothing is recorded unless you are signed in, and nothing here affects anything else.
Sources
- SEC — Stocks (Investor.gov) (opens in a new tab) — The regulator's own plain-language definition of common stock and shareholder rights.
- Berkshire Hathaway — Owner-Related Business Principles (opens in a new tab) — Buffett's statement that shareholders are owners of a business, not renters of a stock.