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    What are Stocks and Shares?

    3 Minutes
    Updated May 9, 2023 01:21

    Shares? Stock? Are they the same?

    Both terms stock and shares are often used interchangeably to refer to financial equities, specifically, securities that denote ownership in a public company (traditionally called stock certificates).

    When a company issues stocks, it is selling ownership shares to investors. These investors become shareholders and are entitled to a share of the company’s profits and assets. This can provide a source of income for the shareholder in the form of dividends. In addition, if the company does well and its stock price increases, the shareholder can sell their stocks for a profit.

    Shares, on the other hand, refer to a unit of ownership in a company or investment fund. This can include stocks, but can also refer to other types of investments, such as mutual funds or exchange-traded funds (ETFs).

    One key difference between stocks and shares is that stocks often refer specifically to the equity securities of a company, while shares can refer to other types of securities, such as debt securities or derivative instruments.

    Overall, both stocks and shares represent ownership interests in a company or investment fund, but they can refer to slightly different things and have different characteristics.

    Why do companies issue stock?

    Companies issue stock to get money for various things, which may include:

    • Paying off debt

    • Launching new products

    • Expanding into new markets or regions

    • Enlarging facilities or building new ones

    Why do people buy stock & shares?

    Aside from earning a profit from the buying and selling of securities. Investors buy stocks for various reasons. Here are some of them:

    • Capital appreciation, which occurs when a stock rises in price

    • Dividend payments, which come when the company distributes some of its earnings to stockholders

    • Ability to vote shares and influence the company

    Types of Stocks

    Common and preferred are the two main forms of stock shares.

    They carry different rights and privileges, and trade at different prices. Common shareholders are allowed to vote on company referenda and personnel. Preferred shareholders do not possess voting rights, but on the other hand, they have priority in getting repaid if the company goes bankrupt. Both types of shares may pay dividends, but those in the preferred class are guaranteed to be paid first if a dividend is declared

    Common and preferred stocks are generally divided into either:

    • Growth stocks, whereby any share in a listed company that is anticipated to grow at a rate significantly above the average growth for the market, whereby the investor earns profit from the growth of the company. A growth company is preferred because some investors speculate that it has a better chance to expand its businesses, gain more market shares and become more competitive in the coming years.

    • Value stocks are often issued by a mature and stable company. It is characterized by steady profitability, undervalued price, high safety and regular dividends in most cases, but it is subject to low price-earnings ratio and low price-book ratio. Meanwhile, a value stock boasts lower risk and volatility than a growth stock.

    * The content presented above, whether from a third party or not, is considered as general advice only.  This article should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments.