Kensington Financial

What Are Equities?

stocksEquity investments are securities which represent ownership in businesses. This ownership is purchased in the form of shares. Common shares have voting rights attached, which permit the owner of the shares to vote at the company’s annual meeting. Common shareholders are also entitled to share in the company’s profits through dividend distributions. Shares can be private or public. Private shares are not required to be approved by the regulatory authorities.

Public shares have legal disclosure requirements and are regulated by government securities regulators like Securities Exchange Commission (SEC). Public shares are also “listed” on stock exchanges such as the New York Stock Exchange (NYSE). These exchanges also regulate the issuers of shares that trade on their exchanges and the investment dealers who trade shares on the exchanges. Stocks that do not trade on a centralized exchange are traded “over the counter” (OTC) through trading organizations such as the National Association of Security Dealers Automatic Quotations (NASDAQ).

Stock prices are set by the trading between buyers and sellers. At any point, the price of a stock reflects the price at which sellers are willing to sell at, and buyers are willing to buy at. Ultimately this reflects interest rates and the prospects for the economy of individual stock issuers. There are many theories of stock and market valuations

What is a Stock?

Usually people mean common shares when they refer to “stocks” or the “stock market”. A common share is a financial security that gives the holder an ownership claim in a company.

It gives the holder right to receive dividend distributions and a vote at the company’s annual meeting. The shareholders vote to elect the directors of a company who appoint the company’s management and set the dividend policy. The shareholders have specific rights under corporate law and the company’s bylaws. Shares that are “publicly listed” on stock exchanges and are required to provide information or “disclosure” to their shareholders in return for being publicly traded. Common shares are also referred to as “equity securities” or “equities” alluding to the accounting term “Owner’s Equity”. Investors and commentators use the terms “equity market” or “equities” when they refer to stocks or the stock market.