Equity in a financial terms means ownership or value. Usually when buying stocks or buying shares in a company you’re trading cash for equity. Equity is a great way to track ownership because even if a company splits their shares or valuations go up you still own a set percentage of the company.

For example if you and a friend start a new company with 4 shares and go 50/50 you can each have 2 shares at 50% equity. If you have 4 shares and each hold 2 you can split these shares as many times and your equity will stay the same as long as you hold the shares. So if you split the shares in half you will have 4 shares and keep the 50% equity.

If you were to sell 1 share of your 4 your equity would go down to 37.5% and whoever you sold your share to will own a 12.5% stake. If you guys kept splitting the shares the person owning the 12.5% will always own a 12.5% until they decide to sell their portion.

This same concept works on public companies as well. Although most publicly traded companies have millions if not billions of shares outstanding meaning owning 1 share will give you an equity in the millionths if not billionths of 1%.

For perspective let’s use $AAPL as an example. At the time of writing this Apple has 15.599434 Billion shares. Owning 1 share will result in a whopping equity of 0.00000000006% or 60 Trillionths of a percent!

Don’t let small percentages discourage you. Owning a piece of a company is still better than owning nothing, especially if you believe in the company you are investing in. Remember your equity stays the same even if the prices go up or down so you can always sell your equity at a future date for more than what you paid for it (if someone is willing to buy it).

Thank you for reading and I’ll see you next Sunday,
– Pablo