Get the 6:05am ASX brief in plain English.

What is a share?

A share (also called a stock or equity) represents one unit of ownership in a company.

What owning a share actually means

When you buy a share, you are purchasing a small piece of the business. This gives you:

• Ownership rights – You become a shareholder, owning a slice of the company proportional to how many shares you hold.
• A claim on profits – If the company chooses to distribute profits, you may receive dividends. Not all companies pay dividends; many reinvest profits for growth.
• Voting rights – Shareholders often get to vote on major decisions such as electing board members or approving acquisitions (depending on the class of shares).
• Capital growth potential – If the business grows and becomes more valuable over time, its share price may rise, allowing you to sell your shares for a profit.

Why companies issue shares

Companies issue shares to raise capital without taking on debt. The money raised can be used to:

• Expand operations or enter new markets
• Hire staff and build capability
• Develop new products or services
• Buy equipment and assets
• Acquire other businesses

What moves the market?

Share prices don’t move randomly. They respond to new information and changes in expectations. Here are the major forces that affect market movements:

A. Company-specific factors

These relate directly to how a business is performing. Examples include:

• Earnings results (profit beats or misses)
• Dividends being increased or cut
• New products or services launched
• Executive leadership changes
• Major contracts won or lost
• Regulatory actions or legal issues

If new information suggests the company will earn more or less than previously thought, the share price adjusts accordingly.

B. Economic conditions

Broader economic trends impact the entire market or large sectors. Key drivers include:

• Interest rates
  Rising rates make borrowing more expensive and are often negative for shares.
  Falling rates make borrowing cheaper and are often positive for shares.
• Inflation
  High inflation increases cost pressures on companies and reduces consumer purchasing power.
• GDP growth or contraction
• Unemployment levels

Markets try to anticipate the future, so even changes in expectations about these factors can move prices.

C. Market sentiment & behaviour

Sometimes markets rise or fall based on how optimistic or fearful investors feel, rather than pure fundamentals.

• Fear-based sell-offs (e.g., pandemics, geopolitical shocks)
• Speculative bubbles when excitement pushes prices above fundamentals
• Behavioural biases such as herding, overconfidence, or panic selling

Sentiment doesn’t always reflect the underlying value of businesses, but it can dominate short-term price movements.

D. Global events

The ASX is highly exposed to global forces. Major influences include:

• US markets (the S&P 500 strongly correlates with the ASX)
• Commodity prices (Australia is resource-heavy)
• Geopolitical events (wars, elections, trade tensions)
• Currency movements, especially AUD/USD

E. Supply and demand

Ultimately, prices move when buyers and sellers disagree:

• If more people want to buy than sell → price goes up.
• If more people want to sell than buy → price goes down.

All the forces above shape whether investors are more willing to buy or sell at a given price.

How risky is investing in the ASX?

Investing always carries risk, but the ASX is considered a relatively mature and stable market compared with many emerging markets. Risk depends on what you buy, how long you invest, and your approach.

A. Types of risk on the ASX

1. Market risk (systematic risk)

This is the risk that the entire market falls due to broad events such as:

• Economic downturns or recessions
• Global financial crises
• Major geopolitical events

No matter how good a company is, its share price can be pulled down during broad market sell-offs.

2. Company-specific risk (unsystematic risk)

Individual companies may struggle or fail because of:

• Poor management or strategy
• High debt levels
• Intense competition
• Regulatory changes
• Technological disruption

This type of risk can be reduced significantly by diversifying across sectors and companies.

3. Sector risk

Some sectors on the ASX are riskier than others:

• Mining & exploration – high volatility, heavily dependent on commodity prices.
• Technology startups – high growth potential but higher failure rates.
• Banks, utilities, consumer staples – generally more stable and more likely to pay dividends.

4. Liquidity risk

Some small ASX companies (small caps and micro caps) trade very thinly. Low liquidity can mean:

• Harder to buy or sell larger positions
• Wider bid–ask spreads
• More volatile price moves

B. Risk vs time horizon

Historically, the ASX has shown:

• High short-term volatility – prices can swing sharply over months or a few years.
• Strong long-term returns – around 9–10% per year over several decades (including dividends) for diversified portfolios.

Over 1–3 years, markets can move around a lot. Over 10+ years, diversified portfolios tend to smooth out risk and are more likely to deliver positive returns.

C. How risky is it in practical terms?

Relatively lower risk approaches:

• Investing in large, established companies (ASX 50 / ASX 200)
• Spreading across sectors (banks, healthcare, telcos, consumer goods, mining, etc.)
• Using diversified ETFs that track the market (e.g., A200, VAS)

Higher risk approaches:

• Concentrated bets in small speculative mining or tech stocks
• Having most of your portfolio in a single sector
• Short-term trading or frequent speculation
• Using leverage or margin loans

D. How investors manage ASX risk

• Diversifying across companies, sectors, and asset classes
• Investing regularly (dollar-cost averaging)
• Limiting speculative small-cap exposure unless you fully understand the risks
• Focusing on long-term time horizons rather than day-to-day moves
• Staying informed about market and economic conditions