ordinary share

Here is the twist nobody tells you when you buy your first shares. The word ordinary makes it sound like the plain, safe option, the default choice, nothing special. But an ordinary share is actually the last person to eat at the table. If the company runs into trouble and has to be wound up, the ordinary shareholders are paid after the bondholders, after the bank loans, after even the preference shareholders. They stand at the back of the queue.

And yet that same back of the queue position is exactly why ordinary shares can make you the most money. Because you carry the most risk, you also get the biggest slice of the reward if the company does well. You get to vote at the annual general meeting, you get a say in who sits on the board, and if profits grow, your dividend and your share price can grow with no ceiling. Preference shareholders get a fixed, capped return. Ordinary shareholders get whatever is left, which sounds risky until you remember that whatever is left can be enormous.

Think of someone in Lagos who buys ordinary shares in Dangote Cement or Zenith Bank through their stockbroker. They are not lending the company money like a bond investor would. They are buying a small piece of the actual business, its factories, its customers, its future profits. If the company does brilliantly, their shares rise in value and they might collect a dividend every year. If it struggles, their investment can shrink, and there is no fixed interest owed to them to soften the fall.

A Nigerian in London investing through an app like Trading 212 or Hargreaves Lansdown is doing the same thing when they buy ordinary shares in Tesco or Shell. Same idea, different exchange, same rule about standing at the back of the queue but keeping the biggest seat at the table when things go well.