Shares are securities—also known as stocks—that represent the smallest fraction of a company’s share capital—or equity—and are the result of dividing the share capital into equal parts. Shares can be from both publicly traded companies and privately held corporations. However, in the context of financial markets, the term “shares” is typically used to refer to fractions of publicly traded companies, meaning those that are traded on a stock exchange.
Shares are investments in equity, granting its holders—the shareholders—the rights and obligations of a “partner” in the company, limited to the shares owned and as established by law, the acquisition of shares grants the shareholder rights such as: voting in meetings—depending on the type of share or certain conditions specified by law—dividends, interest on equity (in Brazil), bonuses, and subscription rights. These returns—which can increase the capital or the number of shares held by a shareholder—are forms of remuneration that shareholders expect in return for the invested capital and the assumption of risk.
Just as with the concept of Legal Entity (PJ) based on the Principle of Entity and the idea of limited liability, the losses that shareholders may incur when investing in shares are generally limited to the amount paid for them (similar to the invested share capital in the case of privately held companies). Additionally, shares are typically quite liquid assets: easy to trade and convert into cash. These characteristics have contributed to making shares one of the main types of assets for savings and investment, as well as extremely important tools for the economic development of nations—especially modern capitalist economies—since their inception in Amsterdam to finance the major voyages of the Dutch East India Company.
There are different types of shares, such as Ordinary (ON) and Preferred (PN), as well as different listing segments, which confer different rights to shareholders, despite the common market environment of the stock exchange. In addition to the specific rules for each type of security and each listing segment, the companies whose shares represent the share capital are also exposed to different markets and risks and have a distinct group of executives and management that can yield better or worse results for the investor.
Professional stock analysis is the prerogative of Securities Analysts; however, their analyses and recommendations are general in nature. Analysts may, for example, indicate whether they believe a stock is cheap or expensive, which would suggest whether people should invest in that company or not. However, even if a stock is cheap, the company may be unsuitable for the investor’s risk profile or may not align with their objectives or time horizon, which could lead to losses in the future.
The consultant undoubtedly relies heavily on the work of analysts, but that work alone is not sufficient for making resource allocation decisions. A more holistic, detailed, and comprehensive analysis for each investor is necessary. This in-depth analysis allows for personalized and more accurate decisions. In any case, securities consulting is a private activity of the Securities Consultant under the law.
To better manage external risks—such as macroeconomic factors—and internal company risks—such as corporate governance and culture, for example—when investing in shares, it is important to seek the assistance of a specialized and independent investment professional, such as a Securities Consultant. Contact me to schedule a consultation.
