What is Stock, Share and Equity?

Before you begin your Stock Investment journey, you must understand some terms that being used. They are 3 terms that are commonly used in stock market: Stock, share and equity. What is Stock?

“Stock” is a general term used to describe the ownership certificates of any company, in general, and “Shares” refers to a the ownership certificates of a particular company. So, if investors say they own stocks, they are generally referring to their overall ownership in one or more companies.

“Equity” means the value of an ownership interest in something.

Technically, if someone says that they own shares – the question then becomes – shares in what company?

Bottom line, stocks, equities and shares are the same thing. The minor distinction between stocks, equities and shares is usually overlooked, and it has more to do with syntax than financial or legal accuracy.

Let’s create a simple a scenario for better understanding. I have a company – Soy Bean Sdn Bhd – that sell Soy beans and it has been doing so well. I want to expand the business globally but I don’t have enough capital or fund to do so. In order to get capital, I have to find investors to inject capital into my company. Assuming I need RM1 million in order to expand the business. I manage to find 10 investors that equally invest RM100k. these 10 investors of course do not blindly give money to me. they seal an agreement with me as the company owner to protect their money. The agreement can be in the sense of Profit sharing and Ownership. Once these 10 investors invest the money, may be they expect 50% profit from the business. Or, I cannot simply use the money unless I get a written consent from investors first.

From the above scenario:

1. Agreement between owner and investor – Stock
2. 10 investors seal agreement with Soy Bean Sdn Bhd . Meaning they shares ownership in Soy Bean Sdn Bhd
3. The value of this agreement is RM1 million (10 investors x RM100k). Simpler term, Equity.

Imagine the above exercise involved 1 billion shares, Equity value of RM10 billion with 100k of investors. It gets more and more complex.

In capital market, a stock is being traded in stock exchange which is regulated and supervised by Securities Commissions. The agreement part has been simplified and computerized. You no longer receive certificates.

Sample Stock Certificate

But what you will receive is a statement of No. of shares that you own from a certain company. For Malaysia, particularly, the certificates is being shown in the form of statement that  generated and sent to investors by Bursa Malaysia (as below screen shot).

CDS Statement of Account

Remember, by buying shares, you become part of the ownership even if only 0.001% of total equity.

We would like to remind you that there are some companies provide investment scheme but not registered and supervised under securities commission to collect money from public. These could be scam and fraud scheme. Please avoid in putting your in this kind of company. Do your background check before you put your money. You are responsible for your own investment.