The terms "stocks" and "shares" often get used interchangeably -- and in most contexts, the difference between them is not significant enough to matter. If you own shares of a company, you own stock in that company, and vice versa. There is a difference, though, one that boils down to the general vs. the specific.
Stock refers to equity ownership in a company. If you own stock in XYZ Inc., then you are literally an owner of XYZ Inc. That gives you a claim on the company's assets, as well as on its profits. If the company chooses to distribute a portion of its profits as dividends, you get a cut of those profits. Owning stock also gives you the right to vote for the board of directors and on any proposals that the board puts before stockholders.
Shares represent the individual "slices" of ownership in a company. Your influence as a stockholder depends on how many shares you own. If you own one share of XYZ Inc. stock and your neighbor owns two shares, you are both stockholders and part-owners of the company, but your neighbor owns twice as much of the company as you do. Dividends and voting rights are assigned to stockholders on a per-share basis. If you get 50 cents in dividends, your neighbor gets a dollar. You have one vote for the board, while your neighbor gets two votes.
Types of Stocks
Investors and financial analysts have countless ways to classify stocks -- tech stocks, financial stocks, blue-chips, growth stocks, value stocks, small-cap, large cap and many more. What's important to understand is that these classifications don't refer so much to the stocks themselves as to the companies that issued them: A "tech stock" is one issued by a company in the technology industry; a "blue-chip" stock is issued by a large, stable company with a dominant position in its industry; and so on. However, "common stock" and "preferred stock" aren't really types of stocks; they're types of shares.
Types of Shares
Companies issue different types of shares. The most common type is, fittingly, "common" shares. These are the basic shares of a company. When you see a company's share price quoted on a ticker or in the media, that's the price for one common share. "Preferred" shares are less common, though not at all rare. They function much like bonds because they come with guaranteed dividends and give their holders a priority claim on the company's assets in the event the company goes out of business, but they typically don't have voting rights. Meanwhile, companies sometimes issue different classes of shares with different privileges. For example, Class A common stock may come with one vote per share, while Class B common stock may come with 10 votes per share. This is how founders and families can sell stock and still retain control of a company.
Video of the Day
- "Financial Accounting for MBAs," Fourth Edition; Peter Easton, et al
- GuruFocus: Classification of Stocks
- Brown Consultancy Services: How Are Stocks/Shares Classified?
- Financial Services of America: Common Stock vs. Preferred Stock
- Comstock/Comstock/Getty Images