Contributor, Benzinga
August 4, 2023

If you are even remotely involved in equity markets, you have likely heard the terms stocks and shares. While the terms are often used interchangeably, the differences are substantial. It is important to understand the differences between the two to speak intelligently about markets, have a firmer grasp on terminology and better understand different investment strategies.

What Are Stocks?

Stocks, as they are referred to in equity markets, are synonymous with individual companies that are publicly traded. The purpose of stocks is to give public investors access to investment in companies. A new stock is created through an initial public offering (IPO). This process allows a company to give investors access to ownership in the company in exchange for capital.

The term stock can also be used to group companies. For example, you may hear people talking about blue-chip stocks, healthcare stocks or small-cap stocks. In this case, the term is used to group publicly traded companies that have similar characteristics.

For example, if you were to buy 100 stocks, you would be buying equity in 100 different publicly traded companies. However, if you were to buy 100 shares, the meaning is quite different. In that case, you are buying 100 parts of equity in one company. 

What Are Shares?

A stock is made up of many shares. A share is the smallest denomination of equity in a company that you can own. For example, you can own one share of Apple stock, meaning you own a piece of equity in the company. Each share represents an equal amount of equity in Apple. If you want to own more equity, you have to buy more shares.

There are also multiple types of shares. For example, there is common and preferred stock (which are actually types of shares), as well as classes of stock, such as Class A, B, C, etc. More detail on the differences between the types of shares appears below.

Key Differences: Comparing Stocks vs. Shares

Shares represent partial ownership in a stock, which is a term used to describe the ownership rights of a publicly traded company. However, several other differences are worth highlighting.

Ownership and Investment Opportunities

Stocks represent individual companies that are publicly traded. If a company has a stock, you are able to buy and sell shares of that stock. Stocks offer the ability to purchase ownership, while the shares are the tools that are used to represent that ownership.

Shares are bought and sold in the stock market. The stock market is made up of several exchanges that match buyers and sellers of shares to create liquidity. Some examples of exchanges are the New York Stock Exchange (NYSE) and the London Stock Exchange (LSE). While these are described as stock exchanges, they allow for shares of stocks to be bought and sold.

Value and Price

Stocks and shares can also be differentiated by value and price. Shares have a price. For example, one share of Apple stock could have a price of $200 on the stock market.  However, this number by itself does not give much insight. To come to a conclusion about a stock’s value, you need to know both the price of shares and the number of shares outstanding. Multiplying these numbers together equals the market capitalization. This measure of the total amount invested in the company is a commonly used way to determine a stock’s value.

Some factors that can influence a stock’s value or share price:

  • News about the company
    • Company earnings
    • Mergers and acquisitions (M&A) activity
    • Future company outlook
  • Analyst ratings
  • Liquidity
  • Technical indicators
  • Economic changes

Dividends and Voting Rights

The two main differences between types of shares are dividends and voting rights. Dividends are when a company pays out its profits to the shareholders. The details, such as how much is paid and how often, are determined by the company’s board of directors. Additionally, some types of shares represent votes in company processes. For example, one share of Apple stock translates into one vote on issues such as board of directors elections or corporate actions.

For dividends, the two main differences involve common stock and preferred stock. Common stock makes up most shares and has a floating dividend. This means that the dividend can change based on how well the company does or on board of directors’ decisions. Preferred stock has a fixed dividend. This means that every dividend payment will be for the same amount, no matter how well or poorly the company performs.

Fun fact: In the event of liquidation, preferred stock takes priority over common stock and will be paid out first.

In terms of voting rights, few distinctions exist between types of shares. For starters, preferred stock does not have voting rights while common stock does. Additionally, companies can issue different classes of stock, such as Class A, B, C and so on. Each class often has different voting rights and is mostly created for strategic purposes.

For example, Alphabet Inc. has Class A, B and C shares. Class A shares are common stock and have one vote per share. Class B is held by the founders and has 10 votes per share. Class C is held by employees and has 0 votes per share. This structure allows the founders to have majority voting control without having to own a majority of the shares.

Risk and Return

Owning stocks and owning shares is also important to consider when making an investment decision. If you own several stocks, you own equity in multiple companies. If you own several shares, you own pieces of equity in one company.

You are more diversified by owning stocks of several companies than you are by owning shares in a single company. Of the two types of risk, market risk applies to all stocks (the economy goes into a recession, government stimulus). Idiosyncratic risk is specific to a single company (Apple phones don’t sell as well, Tesla reports strong earnings). By owning multiple stocks, you reduce your exposure to idiosyncratic risk. 

When you own shares in one company, you are subject to both market risk and idiosyncratic risk. This makes the investment riskier than owning several stocks.

Market Regulation and Trading

The U.S. Securities and Exchange Commission (SEC) monitors the United States stock market. It makes sure that participants in the market are not breaking laws (insider trading, lying about company financials). The SEC’s responsibilities involve "protecting investors, maintaining fair, orderly, and efficient markets and facilitating capital formation.” 

To trade stocks and shares, you go through a broker. Some of the best brokers are listed here. 

If you are looking to own shares in several stocks, a good way to do so is through an exchange-traded fund (ETF). This collection of stocks gives investors easy access to groups of companies. If you are looking to own shares in a single company, you can search for the company and purchase that specific company’s shares. 

Investment Strategies

Long-term investments are investments that are held for a year or longer. Short-term investments are held for a year or less. Long-term investors often invest in stocks and buy shares in many companies. This practice reduces idiosyncratic risk and emphasizes market risk. Short-term investors often look to make a quick profit on single companies and can do so by buying or selling shares in one company.

Stocks and Shares: Connected but Different

The terms stock and share are used similarly but represent different things. Stocks refer to publicly traded companies, while shares refer to the smallest denomination of ownership in a company. It is important to understand the differences between the two terms and their role in financial markets.

Frequently Asked Questions 

Q

Do stock dividends affect stockholders’ equity?

A

No. Dividends can impact the share price, but they do not have an impact on the percentage of the company that each share represents and do not impact stockholders’ equity.

Q

How many shares are there in a stock?

A

The number of shares in each stock is different for every company.

Q

Is it better to buy a stock or a share?

A

Buying a stock and buying a share are used interchangeably in financial markets. You can buy a stock by buying its individual shares.

About Caden Pok

Caden has been involved with crypto since 2018, when he began investing, trading, and mining tokens. He took part in undergraduate research studying cryptoeconomics at the University of Michigan, where he will graduate Phi Beta Kappa with a bachelor’s in economics in 2025. He is experienced with DeFi technology and multiple blockchains, currently investing in Ethereum and Bitcoin.