Understanding Shares and What Types They Are
Shares are proof of ownership of a company.
Simply put, when you buy shares in a company, it means you become a small owner of that company. How big your ownership is depends on how many shares you buy.
If the company is profitable, you can benefit from 2 things:
1. Capital gain: the share price rises, then you sell it for more money
2. Dividends: distribution of company profits to shareholders
But if the company loses, share prices can fall. So there are risks too.
Stock Function
1. For companies: look for capital to grow without having to borrow from a bank
2. For investors: to grow money and share in other people's businesses
Types of Shares
1. Based on Ownership Rights
1. Ordinary Shares or Common Stock
This is the most common type of stock.
Owners have voting rights at the GMS to elect directors and company policies.
Benefits: get dividends if any, and capital gains.
Risk: if the company goes bankrupt, common shareholders are paid last.
2. Preferred Stock or Preferred Stock
Owners do not have voting rights at the GMS.
But it has priority rights. If dividends are distributed, preferred shareholders are paid first.
If the company goes into liquidation, it also takes priority over ordinary shares.
The dividend is usually fixed and larger.
2. Based on Company Performance
1. Blue Chip Stocks
Shares of large, long-established and stable companies.
Examples: companies in the banking, telecommunications and consumer goods sectors.
Low risk, growth is not too fast but safe.
2. Growth Stocks
Shares of fast growing companies.
The profits are usually not divided into dividends, but are used again to develop the business.
The risk is higher, but the potential for price increases is large.
3. Income Stock
Shares of companies that pay large and regular dividends.
Suitable for people who want passive income.
Share price growth is usually slow.
4. Speculative Stock
Company shares whose future is unclear.
It can rise high quickly, but it can also fall deeply.
The risk is the highest.
5. Cyclical Stock
Stocks whose performance follows the economic cycle.
Examples: property, automotive, tourism. When the economy is good the price goes up, when it is bad the price goes down.
6. Defensive Stock
Shares of companies whose products are still needed even though the economy is bad.
Examples: food, health, electricity.
The price is more stable.
3. Based on Trading Method
1. Listed Shares
Shares of companies that have had an IPO and can be traded on the Indonesian Stock Exchange.
2. Unlisted Shares
Shares of private companies that have not yet had an IPO. The buying and selling is done between individuals.
3 Main Risks of Stock Investment
1. Risk of falling prices
2. Risk of company bankruptcy
3. Liquidity risk, namely difficult to sell because there are no buyers
Conclusion
Shares are one way to own a company and grow money.
There are many types of shares. Some are safe but slow, some are fast but risky.
Choose the type of stock according to your financial goals, risk profile and investment time period.
Don't buy because you're following along. First understand the company and the types of shares.
Which type do you want to start learning about stocks first, blue chip or dividend?
