What is a Stock or Share?
The difference between a stock and a share is minimal. Often regarded as the same thing in American English it refers to owning equities, a small piece of a business. Technically owning stocks is the plural context of owning more than one or a unit of shares.
A publicly or privately owned company can issue shares that individuals can purchase. If the company is made public then the shares are available to buy on the stock market for a certain price. Essentially that is the difference when it comes to what is a stock or share.
By selling a stock a company is splitting off ownership of their business to Directors or investors in exchange for their services or to raise capital. Stock can also be privately sold to Directors or investors too.
Publicly traded stocks are predominantly bought and sold on stock exchanges in particular countries such as the US or London Stock Exchange. When you buy a stock you’re investing in that business and through your ownership, you have certain rights as a shareholder.
These rights vary in levels of ownership but the more stock you own of a business the more voting power you have on company decisions. Major shareholders can often have huge sway in a company’s future direction and the business has a responsibility to its shareholders.
What is the difference between a common and preferred stockholder?
A common stock often entitles the holder to certain voting rights and to attend company shareholder meetings. You’re also entitled to receive dividends (if the company pays one) which are paid out by the company usually at the end of a financial year. Preferred stockholders usually do not have voting rights however they have a much larger say in the company.
For example, Mark Zuckerberg, CEO of Facebook will have preferred shares. He receives dividends before a common stockholder and equally has a much larger say in company affairs, hence the term preferred stockholder.
How to buy or sell a stock?
Publicly traded stocks can be purchased on a stock exchange. A stockbroker will offer you the opportunity to buy or sell the stock for a certain price. Investors will use a brokerage account to do this and the price you pay is set by an exchange.
How do I benefit from owning a stock?
Owning a stock can have huge financial benefits. If you purchase a stock for a low price and the company value or stock price rises then your stock will increase in value. For example, if I buy a stock for £5 and it rises to £8.50 then the stock has increased in value by 50%.
A stock can also go down in value should the company underperform or you buy at a high price so it’s important to do your research and look for opportunities when searching for stocks to buy.
Companies can also purchase their own stock, which is called a stock buyback. This helps in the price of the stock by limiting the amount available to buy at one time. It’s often a very positive move for a company to begin purchasing their own stock back as they essentially believe in the future of their own business.
Certain companies also pay what’s called a dividend which is a payment to shareholders based on a company’s profits or revenue earned. Dividends vary in amounts depending on the company and can be paid out to shareholders quarterly or at the end of the company’s financial year.
