For many investors, the terminologies “stock” and “shares” represent a claim on a company’s assets and liabilities. The difference between the two is not very clear for many people given that they are often used interchangeably, but in reality they are different. This article looks at the differences between a stock and a share.
A share is a single unit issued by a company to the investor as a representation of ownership. For example, a company issues 100 shares each valued at $100. An investor decides to buy a single share and gives the company $100. The investor now owns 1% of the company. The investor might decide to buy more than one share and this will collectively be termed as his or her stock portfolio with the company.
Stock on the other hand refers to a collection of shares. An investor could own multiple shares issued by one company or shares issued by more than one company. The sum of shares the investor owns is called his or her stock portfolio.
|Value determined by total number of shares held and performance of each issuing company||Value determined by face value of each share and the performance of the company|
|The total number of shares owned in one or more companies||One unit that represents ownership in a specific company|
|Usually the terms “stocks” and “shares” are used interchangeably and there is no legal difference between the two.|
What’s the difference between a stock and a share? Although one might be used to mean the other, the main difference lies in the value and type of ownership.
- The value of a share is determined by the company’s value. Using the example above, the face value of the issued share is $100. Once the investor buys the share, it can increase or drop in value depending on the company’s performance. In addition, the value of a share from one company will be different to the value of shares from another company. The value of stock on the other hand is determined by the amount of shares owned and the performance of each issuing company. An investor can be able to maintain a healthy stock portfolio even if performance in one of the issuing companies fails. For example, an investor owns stock in companies X, Y and Z. Company X doesn’t do well but Y and Z perform well, leading to an increase in the value of their shares. The increase in Y and Z’s share value can offset losses incurred by the drop in the share value of company X.
- A share represents a unit of ownership in a particular company. The investor in the example above owns shares in company X, and in company Y, and in company Z. He or she might own one or more shares from each individual company. Stock on the other hand refers to the overall number of shares owned. In this case, the investor has a stock from companies X, Y, and Z.
Here’s a short video explaining stocks and why people invest in the stock market.