Definition of Shares and Types, Easy to understand for Beginners

Finance Analysis

Investing should be part of your lifestyle. Besides, there are many investment instruments. Can be in gold, deposits, and stocks. Well, this time the discussion is about investing in stocks.

Maybe it’s still a stock. The impression is that the shares are good for people with money. Even though anyone can invest in stocks. As long as you know the ins and outs.

Indeed, there are still many who are confused about the meaning of stocks and types. A glimpse of what is known is that the stock can provide multiple benefits and vice versa a large loss.

Before going further, first identify the meaning of shares. According to the Indonesia Stock Exchange (IDX), the definition of shares is a sign of equity participation in a company or limited liability company. Because participating in investing capital then have a claim on the company’s income, claims on company assets, and have the right to attend the General Meeting of Shareholders (GMS).

The simple language, the stock is a kind of proof of ownership of a company / business entity. So, if you have shares, then become the owner of the company.

This is why the stock is referred to as securities. Yes because it is valid proof of ownership of a company.

Then why should you be interested in investing in stocks? Here are the reasons.

The capital is relatively small because having money of Rp. 5 million is enough to play stocks.
Can be done anywhere.
The time is flexible because it could be unlimited trade on the Indonesia Stock Exchange (IDX)
The risk can be minimal as long as the capital included is also minimal.
The benefits are unlimited.

Some say playing shares is almost similar to gambling because it is full of uncertainty. This assumption needs to be straightened out first. Indeed all these efforts always produce two sides, namely there are profits and losses.

For example chicken traders also face this situation. If the chicken is sold well then he is profitable, otherwise it does not sell, loses.

The difference is with gamblers, chicken traders even though the merchandise is not selling well but the merchandise is still there. He could sell his chicken at a discounted price to sell well.

So even with stocks where when the value of the stock falls, investors can sell it at a low price, aka losing money. Different from the gambler when he loses he can’t get anything. The business is gone!

Then glancing at stocks as an investment instrument is also not just playing games. When fortunately, then continue, but when you lose, you will see it until you are traumatized by the shares.

Though stock investing requires knowledge and lots of learning. The point is to sharpen the analysis so that it’s not miscalculated.

For starters, here are two categories of stocks.


1. Common stock
Common stock is securities that serve as proof of ownership of a company. This share owner has the right to receive a portion of the income (dividends) from the company and is willing to bear the risk of losses suffered by the company.

Those who own company shares have the right to take part in managing the company. This portion of management rights depends on the number of shares held.

When companies profit, those who have a large percentage of shares will receive a large portion of profits. Instead, they are also prepared to suffer losses if the company fails to earn income.

2. Preferred stock
Preferred shares are securities that prove the owner has more rights than ordinary shareholders. These shareholders are entitled to be preceded when dividing the company’s profits (dividends).

Then also be the first in terms of repayment of capital deposited if the company is liquidated. Finally, he has the right to exchange for ordinary shares.

Impressed preferred shares are better than ordinary shares. Even though it’s not like that. Preferred stocks are no better, but are only different from ordinary shares.

In fact, the best way to view preferred stock is to give up the right to own the company to get protection like a creditor.

How does the stock benefit?

The simple analogy is that the shareholders are the owners of the company. So if the company is profitable, profits will fall to the owner. The net profit the company receives when its performance is good will be set aside for shareholders.

How is the distribution?

1. Capital gain
The benefits are derived from the growth of asset and capital values. Confused? Look, just assume that the shares are like land and land certificates that are companies. Then the price of the land goes up and you sell it.

Now the difference between the purchase price of land and the selling price is called capital gain. That difference is called the capital gain profit.

2. Dividends
Dividends are profits derived from company performance. Back to the ground analogy. For example, the land is used as the location of parking, so that the income from the parking lease is partly to the land owner.

Usually shareholders prefer to seek capital gains because they are faster. Buy at low prices and sell at high prices. Different from dividends which are smaller because they depend on the performance of the company.

Hopefully, up to here, it can give an overview of stock investing. This investment instrument can be an option as long as you want to learn from scratch and don’t need big capital.

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