What Makes a Stock Different From a Bond? | Stock, Share, Investment

A share is a title of ownership that represents part of the capital of a company.

Action, Definition

A share corresponds to a fraction of the capital of a company. Its holder is therefore a shareholder of the company.

What Makes a Stock Different From a Bond? | Stock, Share, Investment
Stock, Share, Investment

Owning shares may entitle the owner, depending on company policy, to receive dividends, and to participate in company decisions at general meetings.

  • The “family” of shares actually corresponds to different types of title deeds, which can give access to variable rights for their owners:

  • Shares with voting rights at meetings: there may be shares with single voting rights or double voting rights, which therefore give two votes to the holder;
  • The share without voting rights;
  • The ordinary share;
  • The preference share: it offers additional rights to its holder compared to an ordinary share;
  • Listed shares: i.e. the shares of a company listed on the stock exchange;
  • Unlisted shares: i.e. the shares of a company not listed on the stock exchange;
  • Registered shares: the company knows the names of its shareholders;
  • Bearer shares: the company does not know the shareholder and their exchanges take place via a financial intermediary;

Investment, the value of a share

When buying a share, you cannot know the return date of the money invested, nor the resale value of the share, as its value may vary daily.

If the resale price of a share is higher than its purchase price, it is called a capital gain. On the other hand the purchase of action is considered as a risky investment, and it is also possible to resell it at a lower price than its purchase price, in this case it is then a capital loss.

As explained above, the value of a share can vary every day, with greater or lesser variations. But it can also happen, in certain cases (such as a company bankruptcy) that a share loses all its value.

Yield stock, growth stock, company policy

When acquiring shares, it is worth finding out about the company's policy regarding dividends.

Companies have the power to decide how they distribute their profits: some choose to keep the profits instead, to reinvest in society. The shares then increase in value, in proportion to the increase in the activities and assets of the company. We then speak of growth actions.

Others prefer to distribute part of their profits to their shareholders. They therefore have so-called “yield” shares. The ratio between the result achieved by the company and what is finally distributed to the shareholders is called the “payout ratio”.

What makes a stock different from a bond?

A share is a title of ownership (capital) that can give rise to dividends. The bond, on the other hand, is a debt security (debt), which entitles its owner to a coupon (annual payment of interest from the company).

Bonds are less risky investments than equities, their value being known from the moment of investment and not being subject to daily variations, as equities can be.

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