Understand stocks and English terminology in the stock market

When it comes to investing in the stock market, many people are often confused by various English terms such as Shares, Stock, Common Stock, and Preferred Stock. In fact, a correct understanding of stocks is a fundamental foundation before making investment decisions. This article will help you clearly understand these concepts.

Basic Definitions: How Are Shares and Stock Different?

In the finance industry, the term “Stock” is a general term used to describe a company’s shares, usually referring to a portion of ownership in one or more companies. Meanwhile, “Shares” has a more specific meaning, often referring to individual units of ownership.

When a company decides to issue shares, it is selling parts of its ownership to the general investors. These investors then become shareholders and gain rights to a share of the company’s profits and assets. Shareholders can benefit in various ways, such as receiving dividends or selling their shares at a higher price for profit.

At the same time, the term “Share” (stock) refers to units of ownership in a company, mutual fund, or even an ETF (Exchange-Traded Fund). Therefore, Shares may include common stocks but can also refer to other investment instruments. Overall, both Shares and Stock represent ownership rights, though their specific meanings may vary slightly depending on the context.

Why Do Companies Issue Shares and Why Do Investors Buy Them?

Companies issue shares to raise funds for various purposes, such as paying off old debts, launching new products, or expanding operations into new markets and regions. Additionally, funds from issuing shares can be used to develop additional facilities.

On the demand side, investors buy shares for many reasons beyond profit from trading. The main reasons include capital appreciation, which occurs when share prices increase; receiving dividends when the company distributes earnings; and importantly, the right to vote on corporate decisions.

Main Types of Shares: Common Stock and Preferred Stock

Shares can be divided into two main types: Common Stock and Preferred Stock.

Common Stock represents ownership in the company and grants voting rights to shareholders for important corporate decisions. However, dividends can fluctuate based on the company’s performance. If the company profits more, shareholders typically receive higher dividends.

Preferred Stock differs significantly. Preferred shareholders have priority over common shareholders in dividend payments and in the event of liquidation if the company faces bankruptcy or closure. Generally, preferred shareholders receive fixed dividends, providing more stability.

How to Choose Between Growth Stocks and Value Stocks

Beyond the classification based on rights, stocks can also be categorized by growth potential and operational characteristics into two types: Growth Stocks and Value Stocks.

Growth Stocks come from companies expected to grow at a faster rate than the market average. Investors choose these stocks because they hope the company will expand its business, increase market share, and remain competitive in the future. However, Growth Stocks often carry higher risks and price volatility.

In contrast, Value Stocks are typically issued by companies with stable growth, undervalued stock prices, and consistent dividend payments. These stocks are considered less risky and are suitable for investors seeking steady income and greater stability rather than high returns.

Both Growth Stocks and Value Stocks have different risk and return profiles. Therefore, choosing the type of stock depends on individual investment goals and risk tolerance.