What Are Stocks Understanding Stocks, Types, Benefits and Risks of Investing in Stocks

What Are Stocks? Understanding Stocks, Types, Benefits and Risks of Investing in Stocks

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What are Stocks? maybe many of you have often heard the word stock but still don’t really understand about stocks. Many think that stock investment must have a large capital, but that understanding is not true. Even though anyone or those who have little capital can also invest in stocks.

Stock is an investment instrument. Shares are proof of ownership of the value of a company or proof of surrender of capital. Shareholders are also entitled to receive dividends according to the amount they own. The form of the share itself is usually in the form of a sheet of paper as evidence of ownership of securities issued by the owner of the company.

In this article, we will briefly discuss the meaning of stocks, types of stocks, benefits, and risks of investing in stocks. Let’s see this article.

Definition of Stock

Quoted from the Indonesia Stock Exchange (IDX) website, stocks can be defined as a sign of the capital participation of a person or party (business entity) in a company or limited liability company. By including the capital, the party has a claim on the company’s income, claims on company assets, and is entitled to attend the General Meeting of Shareholders (GMS).

Types of Stocks

A. Types of Shares Based on Their Ability

1. Common Stock

Common stock or common stock is a stock that can be owned based on the advantages and disadvantages of a company. Shareholders are entitled to receive a portion of the profits (dividends) from the company and are willing to bear the risk of losses experienced by the company.

When the company experiences a profit, the shareholders will also receive a profit according to the percentage of the invested capital. On the other hand, if the company suffers losses, the shareholders will also suffer losses.

2. Preferred Stock

Preferred stock or preferred stock is a share in which the shareholders are prioritized over the distribution of company profits. This includes prioritizing getting back capital from the distribution of assets when the company is liquidated.

B. Types of Stocks Based on Performance

1. Blue Chip Stocks

Blue-chip stocks are shares of large companies that are trusted by business people. This stock has a high price and is quite stable in value.

2. Income Stocks

Income stocks are stocks that pay big dividends but come with big risks. A strategy is needed to manage this type of stock.

3. Growth Stocks

Growing stocks are stocks that have fast growth compared to other stocks in their field. In a day this stock must experience a low rise and fall.

4. Speculative Stocks

Speculative stocks or speculative stocks are stocks that are commonly traded on the stock exchange because they have the potential for large dividends in the future.

5. Cyclical Stocks

Cyclical stocks or cyclical stocks are stocks that are easily affected by economic trends. This stock is volatile, this stock fluctuation is quite fast.

6. Emerging Growth Stocks

Emerging growth stocks are stocks from small but resilient companies, more likely to be unaffected by ups and downs in economic conditions, especially during a recession.

7. Defensive Stocks

Defensive stocks are types of stocks that are not affected by recession conditions. These stocks generally come from companies engaged in the daily necessities industry where the purchasing power is stable every day.

Stock advantages and benefits

One of the benefits of stocks is that they can be short-term and long-term investment instruments. In addition, based on this, the stock gains are dividends and capital gains. For more details, see the following meaning.

1. Dividend

Dividends are profits provided by the company and are derived from the profits generated by the company. Dividends are given after obtaining approval from the shareholders in the GMS.

2. Capital Gain

Capital Gain is the profit obtained from the difference between the purchase price and the selling price. Capital gains are formed by stock trading activities in the secondary market. For example, an investor buys X shares at a price of Rp. 5,000 per share and then sells them at a price of Rp. 6,000 per share, which means that the investor gets a capital gain of Rp. 1,000 for each share sold.

Risks of Investing in Stocks

In addition to profit, shares also have the following risks.

1. Capital Loss

A capital loss is the opposite of capital gain, which is a condition where investors sell shares at a lower price than the purchase price.

For example, an investor buys X shares at a price per share of Rp. 8,000, then the share price continues to decline until it reaches Rp. 7,500 per share. For fear of the stock price decreasing, investors sell at a price of Rp. 7,500 so that investors suffer a loss of Rp. 500 per share.

2. Liquidation Risk

This risk can occur if the company whose shares are owned goes bankrupt or the company is dissolved. In this case, the claim rights of the shareholders have the last priority after all of the company’s obligations have been paid off (from the sale of the company’s assets). If there is any remaining from the sale of the company’s assets, then the remainder is divided proportionally to all shareholders. But if there are no remaining company assets, then shareholders will not get the proceeds from liquidation. This condition is the most severe risk for shareholders. Therefore, a shareholder is required to continuously monitor the development of the company.

This is a brief description of stocks. It never hurts to start investing in stocks. You can start paying attention to bullish or bearish stocks to determine to buy or sell easily. Keep investing with knowledge so you don’t experience fatal risks. Hopefully, the article presented is useful.

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