Investor Jargon: Stock, Shares & Equity
A lot of investing-related language can be straight-up confusing. This can make investing seem scary and much more complex than it actually is. We’d rather investing be approachable, so we’re breaking down some of the common investing terms you might see or hear.
What’s the difference between a “share” and “stock”?
The terms “stock” and “shares" are often used interchangeably, and while we don’t recommend you start correcting your friends every time they do it, there is a slight difference.
Stock is a fairly general term that refers to units of ownership in companies. When someone says, “I own stock,” they’re not necessarily talking about any one company in particular, but just generally that they own a piece of any number of companies.
Shares (as in shares of stock), on the other hand may be company-specific. When someone says, “I own shares,” they may be saying they own part of a specific company.
The gist is: they can mean the same thing, but sometimes they don’t. As long as you’re using these words to refer to units of ownership in companies, you’re doing it right.
Why does stock exist?
Companies issue shares of stock as a way to raise capital. When someone buys shares (aka invests), they become a partial owner. When they become a partial owner, they have equity in the company.
This one is a little bit trickier. Equity is a term that’s used in a lot of different industries, and it can mean different things. You’ve likely heard of equity in regards to fairness (it comes from the Latin aequus, meaning “equal”). Yeah, that’s not what people generally mean when they talk about equity in the investment world.
Instead, you might hear someone who has shares of stock in a company say, “I have equity,” they likely mean “ownership”. They’re not wrong; shares of stock are also often referred to as “equities.” For the numbers nerds at home, there’s also accounting equity, which has an equation: assets - liability = equity.
One thing many of these definitions have in common: equity is ownership.