We often hear about the word investing in companies, or that some companies put some of their shares on the stock exchange to get new investors, or that someone sold their shares. Get to know with us what stocks are and what they mean, and whether they are so important, you will find these answers in this article.
What are the shares?
Shares are the investment that allows the holder of these shares to own part of a public company.
Shares represent ownership in a public joint-stock company. When you buy shares of a company, you become a partial owner of that company.
Owning stock allows you to get a percentage of the company's profits and also gives you shareholder voting rights. Sometimes they are called proprietary rights.
How do stocks work?
- Companies offer their shares on the stock exchange for sale to obtain additional capital, either to grow their business, launch new products, or pay off debt.
- The first time a company issues stock to the public is called an initial public offering.
- After the IPO, the shareholders can resell their shares in the stock market, and the supply and demand control the prices. For example, the more the number of sellers of shares of a company, the lower the price; The more people buy shares, the higher the price. “There is an inverse relationship between the share price and the percentage of its sale.”
- Investors buy or sell shares based on expectations of companies' earnings or earnings. If traders think that the company's profits are high or will rise more, they buy more shares or sell them at a higher price than they bought them.
- If the company does not do well, and the value of its shares declines, the shareholders may lose part or even all of their investment in the sale.
- When the company achieves profits, it is distributed to stockholders either on a quarterly, semi-annual or annual basis, and it is considered a way to reward and motivate shareholders to invest. It is especially important for companies that are profitable but may not grow quickly.
- Some investors may also buy bonds, but they contain more risk than stocks, and those bonds are given options to buy or sell at a certain price under an agreed-upon agreement.
- A call option is the right to buy at a specified price. When the stock price goes up, you make money by buying it at a lower fixed price and selling it at today's price.
- A put option is the right to sell at a specified price. You can make money when the stock price goes down. In this case, you buy it at the minimum price and sell it at the agreed higher price.
- Many financial analysts advise investors to keep stocks for the long term in a diversified portfolio to get the highest return with the least risk.
Stock types
Shares are divided into two types:
Common Stock: These shares allow their holders to vote on corporate affairs such as determining the company’s board of directors, mergers, acquisitions, and liquidation.
However, if the company goes bankrupt and liquidates its assets, the owners of common stock are the last people to receive compensation, after the company's bondholders, preferred shareholders, creditors, and banks.
Preferred Stocks: They are more expensive than common shares, and are 10% of the company’s shares as a whole. Their holders are not entitled to vote, and when the company goes bankrupt, some creditors and banks get their money.
In addition to these two types, there are other ways to classify stocks according to the characteristics of the companies that issued them. These different groups cater to the diverse needs of shareholders. Shares can be grouped by industry sector, including:
- Basic materials.
- Conglomerates: global companies in different industries.
- Consumer Goods.
- Finance.
- Healthcare.
- industrial goods.
- Services.
- technology.
- The facilities.
At the end of our article, we hope that you have obtained the answers to the questions we asked at the beginning of the article and have learned about what stocks are and how they work in the stock market.
