What’s the difference between stocks and shares?

stocks vs shares

Are stocks and shares the same?

Stocks and shares are two terms that are often used interchangeably and essentially mean the same thing. Whilst the origins of each word are slightly different, they both refer to the same type of financial security; namely one that represents partial ownership of a larger asset. Usually this a company of some sort.

Investors typically buy shares in a company or a fund (which is itself a type of company). An investor might decide to buy a number of shares of company X. Once they have bought them, they may refer to owning stock in company X, or to owning shares in it. The two names are used interchangeably.

Companies that have ‘gone public’ have sold part of the ownership of that company, to the public, on the stock market. This enables investors to buy that ‘stock’, or buy ‘shares’ in, and become partial owners of that company.

See here for more on what shares are, and whether you should own them.

What’s the difference between stocks and shares?

Someone may talk about owning stocks, in the general sense, which would likely mean owning shares in more than one company. But when talking about owning shares specifically, they would more likely be referring to owning shares in one particular company. Hence the subtle distinction.

A share is technically a ‘unit of stock’, or a portion of a company.

Back in the good ol’ days, investors were given ‘stock certificates’ as proof of their investments. You may have heard of the phrase ‘buying stock’. But since almost all stock market transactions are electronic now, the two terms have become more interchangeable. The main difference being that shares most likely refer to partial ownership of one particular company and stocks of more than one.

Stock certificate
An old example of a stock certificate – AT&T

Are shares the same as equities?

People refer to owning equities, or to owning shares. Equity in a company refers to a portion of the value of that company. The number of shares denotes how much equity that represents.

Shares are tradeable on the stock market, but equity is not. That said, people will talk about owning or trading ‘equities’. They really mean owning or trading shares in the equity of a company. The terms ‘shares’ and ‘equities’ are often used interchangeably, and refer to the same thing.

How do you calculate what a share is worth?

A company may be worth, let’s say $1,000,000, and decide to go public and issue 1,000,000 shares. The value of each share is the total value of the company, divided by the number of shares in existence. In this case, each share would simply be worth $1.

The value of those shares can move up or down based on what people think the company is worth, and what they are willing to buy and sell them for, on the stock market.

Examples of companies you can own shares in

The company that issues shares may not necessarily be a traditional sort of enterprise, with employees making or trading things, but could be a type of purely financial company as well. Examples include OEICs (Open Ended Investments Companies), Mutual Funds, ETFs (Exchange-Traded Funds), Investments Trusts and REITs (Real Estate Investment Trusts.

For a fuller description of what a share is, see here.

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