WHAT IS STOCK OR SHARE ?
What are stocks, shares and equities?
Stocks, shares and equities are terms used to describe units of ownership in one or more companies. The owner – known as a shareholder – will receive dividend payments, as well as voting rights, if the company grants them.
The terms are often used interchangeably, but there are some technical differences between stocks, shares and equities that can cause confusion.
‘Stocks’ is generally used to refer to portions of ownership of multiple companies – for example, you could say that you own stock in Apple and Nike.
‘Shares’ usually refers to units of ownership in a specific company – for example, you could say that you own ten Apple shares
‘Equity’ is the term for a total ownership stake in the company – for example, if a company had 10,000 shares, and you owned 1000 of them, you could say that you held a 10% equity stake in that company
Why do companies list on the stock market?
Companies list on the stock market to raise capital by selling their shares to institutional or retail investors. Institutional investors means entities like investment funds or banks, while retail investors means everyday people.
Advantages and disadvantages of Stocks for an INVESTOR.
Stocks have their pros and cons depending on what you’re looking for.
Advantages.
Voting rights. There are various types of shareholders of which some can have voting rights. As company owners, common stock holders often can vote on matters like corporate policy, or who serves on its board of directors. In contrast, preferred shareholders generally are not allowed to participate in voting.
Convenience. Stocks are often easy and inexpensive to trade.
Higher potential return. If a company meets or beats profit expectations, its stock may increase in price over time. This is more true for common stock than preferred stock.
Potential income. Some stocks, especially preferred stock, pay dividends which are subject to delay or elimination.
Disadvantages.
Price swings. Stock markets can be volatile and price swings can be frequent — which means your stocks could lose a substantial amount of value in a very short time.
Not guaranteed. Stocks are not guaranteed to return anything to an investor. So, while the possibility for attractive returns is greater than with other investments, so is the possibility of losing money.
How can you invest in stocks?
The stock market is available and easy for everyone, and there are two ways to own stocks.
Direct ownership:
You can buy stock in individual companies through a brokerage account. As competition has increased in recent years, most online brokerages no longer charge commission fees. So, rather than paying to invest, you’ll be able to put all of your money into your investment. Some companies such as Walmart, Coca-Cola and Home Depot also offer direct investment plans, which allow you to buy shares from them — bypassing the need to open a brokerage account altogether.
InDirect ownership:
Indirect ownership: Indirect investing is a much easier approach. Rather than reading annual reports, comparing performance data, and hand-picking stocks, you can own stocks through a mutual fund or an exchange-traded fund (ETF). These funds invest in hundreds — sometimes even thousands — of stocks. Instead of tying your fortunes to a single company, you can benefit from exposure to a wide range of companies. Think of this as instant diversification from the first dollar you invest.
Do you have to buy one full share?
It’s important to note that owning stocks doesn’t mean you need a mountain of money. If you want to invest in Amazon, you don’t have to have more than $3,331 (the current price of one share as of Aug. 2). Fractional investing is available via many brokerages, and it allows you to invest a small amount — as little as $5 — in a company. An indirect investment will also spread that money into smaller fractions across companies. For example, buying one share of a fund might make you an investor in Amazon, Google, and a number of other high-profile companies.