What a stock is, and how to buy one without paying too much

Transcript

Hey, I'm Peter. In Germany, 14.1 million people now own stocks, funds or ETFs, more than ever. Yet only about 4.9 million of them hold even a single individual share. Most people buy through funds. In this lesson we look at what a stock really is, why going direct can pay off, and what can go wrong along the way.

A share is a piece of a company. The idea is old: in 1602, the Dutch East India Company in Amsterdam issued the first tradable shares. The principle is the same today. Buy one Apple share and you own a tiny part of Apple. You share in the profits, often through a dividend, and you get a vote at the annual meeting. The price is just what someone pays for it today. What the company is really worth is a different question. That is exactly what this tool answers.

Now for the money. An actively managed equity fund from a bank branch often costs around 1.5 percent a year, plus an upfront sales charge of three to five percent. At an online broker, a stock order often costs just one euro, and the share itself has no running fee. Sounds like a small difference? Do the math: 10,000 euros, 30 years. At seven percent a year, that grows to just over 76,000. Take 1.5 percent in costs off every year and you are left with just under 50,000. More than 26,000 euros less, just from fees.

So do the expensive funds at least deliver more? Usually not. According to S&P's SPIVA study, over the ten years to June 2026 about 94 percent of active equity funds in Europe trailed their benchmark. Buying direct skips that layer. But then you decide yourself what to buy, and you need to spread your money. More on that in a moment.

Here is how a purchase works. At an online broker you open a securities account, your safe deposit box for shares. You place an order, and the broker routes it to a trading venue, such as Xetra in Frankfurt, the New York Stock Exchange, or an off-exchange venue like Tradegate. The same Apple share trades in several places, in euros in Frankfurt and in dollars in New York. Watch two things: trading hours, because little happens outside them, and the spread, the gap between the buy and the sell price.

There are three order types to know. A market order fills right away, but at whatever price is current. A limit order sets your maximum price when buying, or your minimum when selling. The price is certain, the fill is not. And the stop order? Many people see it as insurance. But it only turns into a market order once the price hits your level. If bad news arrives overnight and the stock opens lower, you don't sell at 47, you might sell at 42.

Now the side few people talk about. Researcher Hendrik Bessembinder studied every US stock since 1926. The result: most individual stocks returned less over their lifetime than short-term Treasury bills. The best four percent explain the entire net gain of the market. So a single stock can go to zero, while a broadly spread portfolio historically has not. That is why you never put everything on one card.

And over the long run? UBS's Global Investment Returns Yearbook goes all the way back to 1900. Since then, world stocks have returned 5.2 percent a year after inflation, bonds 1.7 and short-term cash 0.5 percent. At 5.2 percent, 10,000 euros of buying power would grow to about 46,000 in 30 years. The price you pay is years like 2008, when world stocks lost around 40 percent. Selling then is what makes the loss real.

In short: buying direct saves costs, but it means you need to know what you buy and spread it well. That is what the Fair Value Calculator is for. It values more than 35,000 stocks every day and shows you whether the price sits above or below what the numbers support. In the next lesson, we see how an annual report turns into a valuation. Important: this is not financial advice.