Shares and Stocks: Two Concepts Investors Must Understand

Are Shares and Stocks Really the Same?

Many newcomers to the investment world often confuse shares and stocks. In fact, these two concepts are related but have differences.

Essentially, shares represent a unit of ownership in a company or fund. When a company issues shares to the market, investors who purchase these shares become shareholders and gain the right to share in the company’s assets and profits.

Stocks are a more specific form of security, typically referring to the equity certificates issued by publicly listed companies. In other words, stocks fall under the category of shares, but the scope of shares is broader and can also include ownership units in mutual funds, exchange-traded funds (ETFs), and other investment products.

The key difference between the two is: stocks generally refer specifically to equity certificates of listed companies, while shares may cover a wider range of investment instruments. Regardless of the type, holders can earn returns from them.

Why Do Investors Buy Shares and Stocks?

For investors, the appeal of purchasing shares is not just about buying low and selling high. There are several main reasons:

First is capital appreciation. When a company performs well and the market is optimistic about its prospects, stock prices tend to rise, allowing investors to profit from selling. This is a primary reason many people are enthusiastic about the stock market.

Second is dividend income. Many companies distribute part of their profits as dividends to shareholders, providing a stable cash flow for stockholders. Especially for mature and stable companies, dividends are often paid regularly.

Finally, owning shares also means gaining corporate governance rights. Except in rare special cases, shareholders can participate in voting on major company decisions, giving investors influence over the company’s development direction.

Why Do Companies Issue Shares?

From a company’s perspective, issuing shares is a form of financing. By selling shares to the public, a company can quickly obtain the necessary funds for various operational goals.

Common uses of financing include: paying off existing debts, research and development, launching new products, entering new regional markets, expanding existing facilities, or building new production bases. These investments often require substantial capital, and issuing shares provides an efficient financing channel.

Main Types of Shares

There are two basic forms of shares in the stock market, each with different rights characteristics:

Common shares are held by common shareholders, who have full voting rights and can participate in decisions regarding personnel and major matters of the company. They are also entitled to dividends. However, in times of financial trouble or bankruptcy, common shareholders’ claims are paid after other creditors.

Preferred shares are the opposite. Preferred shareholders do not have voting rights but enjoy priority in dividends—meaning they receive dividends before common shareholders. More importantly, in the event of bankruptcy and liquidation, preferred shareholders have priority in asset repayment. This makes preferred shares relatively less risky.

Within these two main categories, shares can be further subdivided:

Growth stocks come from companies expected to grow at a rate significantly above the market average. Investors are attracted to these stocks due to the anticipation of future earnings—believing these companies have the potential to expand market share and enhance competitiveness. Growth stocks tend to have higher price volatility, offering greater potential returns but also higher risks.

Value stocks are typically issued by mature companies with stable financial performance. These stocks are often undervalued by the market, possess steady profitability, and usually pay regular dividends. The volatility and risk of value stocks are lower than those of growth stocks, making them more suitable for conservative investors seeking stable income.