Stock Vs. Share: Understanding the Key Differences
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- A share represents an investment and ownership interest in a publicly traded company.
- A share is the smallest denomination of shares in a specific company.
- Companies issue shares to attract investors and make money, while shares are the measure of a share.
If you think shares and shares mean the same thing, you’re missing the difference between the two terms. but you are not alone. people often conflate the two terms, even though they are not the same thing.
The difference is important because the two terms relate to each other in a way that helps investors understand the role each plays. read on to learn the real differences between stocks and shares.
Despite the distinction between the two, actions and actions are often used interchangeably, which is one reason there can be confusion. people will say: “I have shares of coca-cola” or “I have 10,000 shares of coca-cola”.
the stock is not specific. it doesn’t tell you how many shares you own. actions are specific. each share represents a specific stake in the stock of a specific company.
quick tip: property interest is not the same as ownership. owning stock does not mean you actually own property or assets of the company.
Four types of stock are often discussed: common, preferred, class A, and class B.
- Common Stocks: This is the type most people invest in and represents the majority of issued shares. common shares confer voting rights to shareholders, typically one vote per share.
- preferred shares: this type of share typically does not confer voting rights, but is redeemed before common stock (but trailing bonds) in the event of liquidation. preferred stock is really a hybrid between stocks and bonds.
- class a shares: this is a type of common stock that confers more voting rights than class b shares . other than that class a and class b shares are the same.
- class b shares: are also a type of common stock but with less voting rights.
note: the higher voting power of class a shares is priced higher. For example, Berkshire Hathaway’s (NYSE: BRK.B) Class B shares are trading at around $288 per share. Berkshire’s Class A shares (brk.a) are trading for more than $422,000 per share and each share has more than 1,400 votes against brk.b’s single vote.
Shares are traded on a stock exchange. this is where buyers and sellers engage in an auction process by making offers to buy and sell shares. The two largest stock exchanges in the United States are the New York Stock Exchange (NYSE) and the Nasdaq, both in New York City, with the NYSE being the largest by market capitalization.
Note: Stock exchanges do not own the stocks they trade. A stock exchange is a place where buyers and sellers exchange shares.
An example of a share would be a share issued by Coca-Cola Co.
Stocks are denoted by the name of the company and also by the stock’s stock symbol, often preceded by the name of the stock exchange on which the stock is listed. ex. coke co. (nyse:ko). Owning Coca-Cola common stock entitles you to several important things:
- the right to receive a portion of coca-cola’s profits in the form of dividends
- the right to sell your shares for a profit when the value rises
- the right to vote at meetings with other owners of coca-cola shares
note: you can technically buy less than one share. Many brokers also allow you to buy and sell what are known as fractional shares, allowing you to buy a part, or “fraction,” of a share. this provides opportunities to own stock that you might not otherwise be able to afford.
Investors can also determine the size of their ownership, or stake, in the company based on the percentage of all outstanding shares they own. For example, if Coca-Cola issued 100,000 shares and you own 10,000 shares, you own 10% of the outstanding shares (but not 10% of The Coca-Cola Company).
As with actions, there are different types of actions.
- common shares: are the same as common shares.
- cumulative preferred shares: are a type of preferred stock that requires paying lost dividends sooner than other types of shares.
- deferred shares: these types of shares have no rights to the assets in bankruptcy until preferred shareholders and have been paid.
- Non-Voting Shares: As you might expect, these shares do not confer voting rights and are generally issued to employees and family members of major shareholders .
- preferred shares: are the same as preferred shares.
- redeemable shares: these shares can be repurchased by the company on or after a predetermined date or after a specified event. this is essentially an embedded call option.
- Redeemable Preferred Stock is preferred stock with a call option.
example of a shared resource
A share, then, represents a fraction of all the shares issued by the company. All of this matters when it comes to the return you receive on your investments.
- Suppose you buy 10,000 shares of ko at $50 each. your total investment would be $500,000. If the price of a single ko share rose to $60 and you decided to sell all 10,000 shares, you would receive $600,000 or a profit of $100,000.
- Suppose ko declares a dividend of $1, expressed as earnings per share (eps). Your 10,000 shares of ko would generate a dividend payment of $10,000.
Quick tip: Dividends, in the form of earnings per share (eps), are generally paid four times a year (quarterly).
shareholder versus shareholder
Generally, shareholders own shares in a company, while stockholders own shares. In this case, shares and shares are the same since shares are measured in shares. this means that both a shareholder and a stockholder have an ownership interest in the company.
Technically, shareholder is the more accurate term, as it clearly refers to someone who owns shares and an equity stake in the company. a shareholder could be someone who owns inventory or raw materials instead of stock.
important: do not confuse shareholder and shareholder with interested party. An interested party can be a shareholder, an owner, an employee, a vendor, a debtor, or even a customer. stakeholders do not have to own shares. they have a reason to expect the company to do well that may have nothing to do with an investment.
the end result
Although investors often use the terms stock and share interchangeably, there is an important difference between them. Stock is a generic term that refers to an ownership interest in a publicly owned company. share is specific and refers to the smallest denomination of a company’s shares.
When you own stock in a company, you actually own stock in that company. the term shares has no value and may relate to one or more companies. each share has a specific value and is related to a specific company.