Have you ever wondered… are stocks and shares the same? The two phrases are often used synonymously. This can be pretty confusing. But are they the same thing?
Many people use the terms stocks and shares interchangeably. However, they do not mean the same thing. “Stocks” refers to large pieces of the publicly-traded company one is investing in; meanwhile, “shares” refers to the amount of the company the person owns.
The more shares you own, the more of the company you own. However, many companies require a minimum number of shares before investors can make decisions. Here’s some more information about the similarities and differences between stocks and shares.
Are Stocks And Shares The Same?
Lets start by taking a closer look at the definitions of both.
What Are Stocks?
Both “stocks” and “shares” are terms used when discussing investment in the stock market.
When discussing your investments, few will notice if you swap the two terms. In fact, many people use these two words interchangeably. This can confuse first-time investors!
First, let’s discuss what stocks are.
The term stocks refer to the companies you invest in. For example, FB (the ticker for Metaverse Platforms) is a stock. Unless you are extremely wealthy, it is unlikely that you’ll own stock. This would be the equivalent of owning a large part of the company.
But you don’t have to work at a company to invest in their stock.
Only companies listed on the public stock exchange are open to investors. The two largest public stock exchanges in the world are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) Stock Exchange.
Investors can also find stocks in “Over-the-Counter” (OTC) markets. Companies that trade through this market are called “unlisted stocks.”
Different Types Of Stock
There are many different types of stocks that you can invest in. However, the type of the stock typically determines what kind of business the company does.
The different types of stocks include:
- Energy Stocks
- Blue Chip Stocks
- Value Stocks
- Large-Cap Stocks
- Small-cap Stocks
- Food-sector Stocks
Learn more about the different types of stocks below (or skip to the summary for my closing arguments).
Energy Stocks
Companies listed under energy stocks are those that explore, produce, and market energy sources. These sources include oil, gas, wind, water, and solar. While renewable energy sources fall under this category, they are also classified as sustainable or green stocks.
According to Investopedia, the best energy stocks at the moment are Marathon Petroleum Corp., HollyFrontier Corp., and Valvoline Inc. Other energy stocks include Wisconsin Electric and Pinnacle North West.
Value Stocks
Value stocks don’t necessarily refer to the company, but more so the investor’s potential earnings. Value Stocks tend to cost less but earn higher dividends. These companies have the potential to grow significantly.
According to Motley Fool, the three best value stocks at the moment are Berkshire Hathaway, Procter & Gamble, and Johnson & Johnson.
Large-cap and Small-cap Stocks
Large-cap stocks refer to stocks with large capital, specifically those with $10 billion market capitalization or more. If you’re looking to expand your portfolio, these stocks have little risk of failure. In other words, they are a safe investment; however, they rarely produce quick returns.
Meanwhile, small-cap stocks refer to companies with $300 million to $2 billion market capitalization. Investors hope that these stocks will eventually become large-caps.
There are a variety of other stock types. It’s important to diversify your portfolio by investing in different types of stocks. If you prefer to invest in certain types of businesses, you’ll want to know all the different types of stocks.
To invest in stocks, you’ll need to work with a broker. However, stocks don’t have to be invested in individually. You could invest in the stock market via a mutual fund as well as other methods.
What Are Shares?
Now that we know what a stock is, let’s take a closer look at shares.
When you invest in a stock, you purchase shares.
You don't have to own an entire share!
Many people invest in fractions of a share.
The easiest way to understand the difference between stocks and shares is by comparing them to water and milliliters.
- Stocks would refer to the individual bodies of water.
- Meanwhile, the shares are the amount of the stock you own. In other words, the shares are the unit of measurement.
Shares are part of a company’s stock, but they are an extremely small portion of the stock. Most of the time, shareholders can’t influence the people who are board members or who the CEO is. They have no voting rights, unlike stockholders.
However, sometimes shareholders are allowed to vote for the company’s personnel and referenda. If you want to help make changes in a company, purchase preference and ordinary shares.
If you own enough shares, you get a vote in company decisions!
However, this is usually costly. Were you to own all the shares of a stock, you would be the owner of the company. People who own shares are often called shareholders.
Those who own shares in a company earn money through dividends. Companies give dividends to their shareholders from their profits. Dividends are sort of like the reward that the shareholders get for investing in the company.
Those looking to earn more cash regularly can have their dividends given to them in the form of cash. However, many choose to have their dividends awarded in the form of more shares.
In other words, you could finish with more shares than you started with without ever paying a dime.
Different companies distribute their shares at different times; however, they will always be distributed consistently.
Different Types Of Shares
Like stocks, there are a variety of different types of shares that you can purchase. The following are the different types of shares available:
- Ordinary shares
- Cumulative preferred shares
- Deferred shares
- Non-voting shares
- Preference shares
- Redeemable shares
Investors can sell their shares at any point. However, it is best to do so only when the shares are more valuable than they were when you initially purchased them.
That said, some stocks may decline quickly in value with little hope of rising again. In this case, it is best to sell your shares before you lose too much money.
If you invested via an index mutual fund, you likely won’t make the decision of when to sell your shares.
Summary
Ok, so are stocks and shares the same?
No, not really.
Does this matter?
No, not really.
For the average investor, the differences are merely semantic (or pedantic).
The more important thing is educating yourself about the stock market and how to invest.
You should start by learning about index funds and making money in the stock market.
Knowledge is power.
Go get some.
