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(582KB) Understanding your shares
- How does the stock market work?
- What affects a company's share price?
- Why has the stock market been falling recently?
- What is a credit crunch?
- How does Standard Life's share price compare?
- Why did Standard Life want to buy Resolution?
How does the stock market work?
The stock market is just what it says: a market for buying and selling stocks and shares. It allows companies to raise money by selling shares in their business. Their shareholders own the company, can vote at general meetings and are normally entitled to receive a share of any profits paid out as dividends. Shareholders can buy and sell their shares on the stock market.
What affects a company’s share price?
How much shares are worth at any time depends on a number of things, including:
- The value of the business
A company’s share price is strongly related to how the business is performing. It generally goes up when its business is growing profitably and has a good outlook.
- How well the stock market is performing
A company’s share price can also be affected by things that have an impact on the stock market as a whole – like interest rate changes, a slowdown in the economy and one-off events. When markets fall, so do many companies’ share prices.
Why has the stock market been falling recently?
Stock markets go up and down, depending on a number of things, including how confident investors are about the economy and the future. One of the main reasons markets have been falling over the past few months is the fear of an economic recession in the US, partly because of the current credit crunch – see below. Stock markets are increasingly global, so what happens in one country can affect markets in other countries.
What is a credit crunch?
It’s a time when it is more difficult to borrow money. In a booming economy, it’s usually easier to borrow money – which is what has happened in recent years. Particularly in the US, banks have lent a lot of money to those with high credit risks – the sub-prime market. These debts were then packaged and sold to financial institutions around the world, who then sold it on to pension funds and hedge funds. Because the lenders include some of the world’s biggest financial organisations, this has caused a lack of confidence in the financial markets. It has also made it much more difficult to borrow money – which is why there is now a credit crunch.
How does Standard Life's share price compare?
Our share price ended 2007 17.4% lower than it started. The life assurance sector as a whole ended the year 11.75% lower. Taking a longer term view, from the closing price on 10 July 2006 – our first day as a plc – our share price on 31 December 2007 had increased by 4.2% compared to a growth of 3.7% in our sector.
Why did Standard Life want to buy Resolution?
We believed the proposal to buy Resolution had strong commercial logic and would offer significant financial and operational synergies. We withdrew from negotiations when it became clear that market conditions and the asking price meant that a revised offer would not have created enough value for our shareholders.