Definition Of Shares: Benefits, Types, Risks Of Shares

Actually, what is stock? Stock is a valuable document that shows the ownership of a company. In other words, when someone buys shares, that person has bought a portion of ownership of the company.

The meaning of shares (stock) can also be defined as a unit of value or bookkeeping in various financial instruments that refer to the ownership portion of a company. So, when someone buys shares of a company, that person already has the right to ASSET and the company’s income with a portion of the shares purchased.

Simply put, a stock is a proof of ownership of a company or business entity. The form of shares is generally in the form of a piece of paper in which it is stated that the owner of the securities is the owner of the company that issued the letter.

Definition of Stock According to Experts

To better understand what share / stock means, for that we can refer to the expert opinions of the following:

1. Nofie Faith

According to Nofie Iman, the understanding of shares is securities that provide high profit opportunities but also have high risk potential.

2. Sapto Raharjo

According to Sapto Raharjo, the definition of shares is a securities which are instruments of ownership or participation of individuals or agencies in a company.

3. Tjiptono Darmaji and Hendy M. Fakhrudin

According to Tjiptono Darmaji and Hendy M. Fakhrudin, the notion of shares is proof of ownership of a person / agency in a company or limited liability company. The shares are in the form of a securities explaining that the owner of the securities is the owner of the company that issued the securities.

4. Swadidji Widoatmodjo

According to Swadidji Widoatmodjo, the definition of shares is securities issued by a company in the form of a limited liability company or called an issuer.

Types of Shares

Share Types
In terms of capability in claim and claim rights, types of shares can be divided into two types, namely:

1. Common Stock (Common Stock)

The definition of common stock is a stock that can be claimed based on profits and losses that occur in a company. If liquidation is carried out, ordinary shareholders will be the last priority in the distribution of dividends from the sale of company assets.

In ordinary shares, shareholders have limited liability. In other words, when a company is declared bankrupt then the maximum loss incurred by the shareholder is the amount of the investment in the shares purchased.

The characteristics of ordinary shares are as follows:

  • Shareholders have voting rights in electing the board of commissioners.
  • Shareholders’ rights take precedence when the company issues new shares.
  • Shareholders have limited liability, that is, for the amount of shares owned.

2. Preferred Stock

The definition of preferred share is a share in which the division of profits is fixed, and when the company suffers losses, preferred shareholders will be given top priority in the revenue sharing of assets.

Preferred shares have similarities with bonds, namely the existence of claims on profits and previous assets, fixed dividends during the validity period of the shares, and has redemption rights, and can be exchanged (convertible) with ordinary shares.

The characteristics of preferred shares are as follows:

There are several levels that can be published with different characteristics.

  • There are claims for income and assets, and get a high priority in dividend distribution.
  • Preferred shares can be exchanged into ordinary shares through an agreement between the company and shareholders.

When viewed in terms of trading performance, shares can be grouped into five types, namely:

  1. BlueChip Stocks, which are common shares of companies with high reputation, become market leaders in similar industries, have stable income, and consistently pay dividends,
  2. Income Stocks, which are shares of an issuer with the ability to pay dividends above the average payment of dividends the previous year. This type of stock generally can provide greater income and routinely pay dividends cash.
  3. Growth Stocks, namely stocks consisting of well-known and lesser-known. Well – Known is a stock of issuers with high income growth, market leaders in similar industries and has a high reputation. Lesser – Known are shares of issuers that are not market leaders in the industry, but have growth stock characteristics.
  4. Speculative Stock, i.e. shares of companies that do not have regular income every year, but have the potential to have high income in the future, although it is uncertain.
  5. Counter Cyclical Stocks, i.e. stocks that are not too affected by macroeconomic conditions or the general business situation. The value of these shares can remain high during an economic recession because the issuers are able to get high income so they can provide high dividends.

Benefits and Advantages of Shares

One of the main benefits of shares is that it can be used as an investment instrument, both short and long term.

Those who use shares as a short-term investment usually only want capital gain from the difference between the purchase price and the selling price. Unlike those who use shares as a long-term investment, where they routinely buy shares or save shares.

So, there are two benefits that can be obtained by stock investors, namely;

  • Capital Gain, which is the profit obtained from the difference in the selling price of shares higher than the purchase price. Every stock investor gets profit according to the size of shares owned.
  • Dividends, i.e. profits derived from the distribution of cash dividends of an issuer . This is an additional income obtained by investors when buying shares from issuers that have good revenue performance.

Stock Investment Risk

Although considered a profitable investment, basically investment in shares has its own risks. Some of the risks of stock investment are as follows:

1. Liquidation Risk

This risk occurs when the issuer goes bankrupt or is liquidated where the shareholders have the last claim rights to the company’s assets after the issuer’s obligations are paid. Even shareholders may not get anything when the assets are not left after the issuer has paid its obligations.

2. No Dividend Distribution

This risk occurs when the issuer uses the company’s profits to expand its business so it decides not to distribute dividends to shareholders.

3. Investors Losing Capital

This risk occurs when the purchase price of shares is greater than the selling price so that shareholders lose their capital (capital loss).

4. Delisting Shares from the Exchange

There are several reasons that cause shares to be removed from the stock exchange so that these shares cannot be traded. Of course this will make the issuer and shareholders suffer losses.

Above was a brief explanation of the definition of shares, types of shares, and the benefits of shares. Hopefully this article is useful and broadens your horizons.

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