Common stock: what is it and how to start investing?

Common stock: what is it and how to start investing?

Table of Contents

A common share is an asset represented on the stock exchange by the acronym ON. It is always identified by the digit 3, which comes at the end of the action. For example: Petrobras common shares – PETR3, Vale – VALE3, AMBEV – ABEV3 and etc..

The stock exchange has an infinite range of possibilities for those who decide to venture into it. One of the most common investments is in company stocks. Among the main asset models, we can highlight the common share and the preferred share.

While in the first, you have the right to vote and influence the company's decisions; in the second, you become a preferred shareholder in the division of profits.

A survey by Anbima (UK residents Association of Financial and Capital Markets Entities) showed that, between March and May 2021, equity funds raised £ 9.8 billion net.

Despite this promising number of investors, for those who are starting to invest these technical definitions look like a seven-headed bug. However, understanding how these actions work is easier than you might think.

Therefore, to help you in the challenge of knowing the process of investing in shares and providing support for you to start investing in the stock exchange, we will detail in this content what ordinary shares are. Check out!

What are actions?

Before we talk about what ordinary action is, let's define the concept of action. Also known as “securities” in the market, the shares are a portion or fraction of the companies' share capital.

They are traded on the Stock Exchange and whoever acquires a share becomes a partner in that company. The main objective for a company to launch an action on the market is to expand the business. After all, with the sale of his shares he is raising money.

Currently, there are more than 1.9 million UK citizens registered on the Stock Exchange and many are constantly investing in stocks. Compared to 2018, the high participation of UK citizens in this market is 164%.

The best-known shares on the market are common and preferred shares. We'll talk more about them below:

What are common shares?

Common stock is an asset represented on the stock exchange by the acronym ON. It is always identified by the digit 3, which comes at the end of the action. For example, Petrobras common shares – PETR3, Vale – VALE3, AMBEV – ABEV3 and etc.

This asset entitles the shareholder to participate in voting at company meetings. This means that it has an influence on the direction the organization will take in the market.

It is important to note that the greater the degree of investor participation in the purchase of common shares, the greater his or her right to make company decisions. However, it is good that the investor always consult the company's bylaws.

Since the small investor may have a greater or lesser influence on decisions and the weight of their vote may be greater or lesser, depending on the company.

In some, the individual investor can directly impact the organization's strategies, even preventing merger purchases. In other companies, the participation of individual investors is very small.

What are preferred shares?

Preferred shares are denominated by the acronym PN and those who acquire these assets have preference in receiving the profits of the organization. Preferred shares end with end 4. Examples: Petrobrás – PETR4, Itaú – ITUB4, Bradesco – BBDC4.

It is also known in the market for having good liquidity, that is, it is easier to buy and sell it in the market.

What are the differences between common and preferred shares?

Knowing the meaning of the common and preferred shares, we list below the main differences between them:

  • The common share allows the right to vote. The preferred share, on the other hand, only restricts voting or follows the bylaws;
  • The preferred share gives priority to shareholders in the profit sharing. Common stock is “in the background”;
  • Preferred shares are more liquid than ordinary shares;
  • The common share has the tag along * and in the case of the preferred share it is not guaranteed by law.

* Tag along is a mechanism for protecting shareholders. In the event of a change in control of the company, sale of the company, the minority shareholder is entitled to receive at least 80% of the value of each share, which may reach 100%, depending on the bylaws.

Tips for investing in common stock on the stock exchange

The stock market is fraught with challenges, so it is important to follow some basic tips before you start investing in common stock safely. Check out some of them below:

1. Define your investor profile

Before deciding to buy a common share, the investor must define his market profile. It is essential to be clear about this so that decisions are assertive.

Think and reflect if you have:

  • a more conservative or bold profile;
  • Are your goals short-term or long-term? (NOTE: the stock exchange normally contemplates long-term objectives).

Pay attention also to volatility and liquidity, as these two points can make all the difference as to when is the best time to buy or sell a particular stock.

Want to know more to understand which profile you fit in? Read the article: ‘How to find out your investor profile?'.

2. Do a market analysis

Choosing which company to invest in and whether to opt for common stock is one of the major challenges in the market. The great truth is that there is no cake recipe due to the volatility of the stock exchange.

However, it is possible to do two types of investment analysis based on the stock market. They are: technical analysis and fundamental analysis.

They mainly serve as a reference object to define when is the best time to trade shares. Making projections of values ​​or possible returns.

The technical analysis takes into account the price chart and the behavior of the stocks in the market to glimpse patterns and circumstances.

In the fundamental analysis, a thorough study is made of the company's financial side, taking into account cash flow, balance sheets, growth prospects and the influence of factors such as interest and inflation.

3. Know the governance rules

Another important step before investing in common or other stock is to understand the rules of market governance.

  • What will be the reputation of the company you want to invest in?
  • Is it well managed?

Many publicly traded companies adhere to a set of rules, called B3's corporate governance, for placing their shares on the stock exchange. All of this to attract more investors and offer greater security to these future shareholders.

These governance rules allow for a better view on investment security.

Allowing the shareholder to view their rights from that investment as their influence on decision making, access to balance sheets, accountability and equality in the treatment of the company's investors.

Being aware of these rules can make all the difference in the future if there is a need to charge something based on the legislation. Avoiding possible abuses by companies that trade their shares without adhering to this set of principles.

4. Find out about the liquidity of assets

The liquidity of the assets is also an important point to define its performance within the stock exchange. In this choice, your investor profile has to be taken into account.

The common share has less liquidity than the preferred share. Because the preferred stock offers greater ease of buying and selling on the stock exchange, even allowing the return on investment to be faster.

In common shares, it is common for investments to be long-term, mainly by guaranteeing the tag along.

5. Choose the best broker

In order to make investments on the stock exchange, the investor must create an account with a brokerage that is able and authorized to operate on the stock exchange.

The market is full of options and choosing the best one is not always an easy task for those who are starting life on the stock exchange. So, pay attention to the broker's reputation in the market and the following points to make the right choice:

  • What is the brokerage fee;
  • Platform facilities for negotiations;
  • If the institution offers investment guidance;
  • How are the reports generated on the investments made;

Based on this information and in line with your profile, it is easier to define the broker closest to meeting your goals.

Investment and planning

Investing in stocks requires first of all planning. It is impossible, even for an initial investor, to enter the stock exchange without knowing anything. Especially because the chances of losing money will be huge.

One of the first steps is to understand the actions and what each one represents. In the case of ordinary action, we can say that it is intended mainly for those who wish to have a voice in the company's decisions.

Given that the right to vote at a meeting gives this possibility, and may influence investments, purchases and sales of the company.

In addition, the ordinary share usually attracts those who think about long-term investments, mainly due to the guarantee provided by the tag along. In contrast, if you think of liquidity, the best option is preferred shares.

Therefore, before investing, evaluate the market moment, outline your investor profile, hire a good stockbroker and take into account the opinions of those who understand the subject.

Money with security and low cost: the UK residents does not give up

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Did you understand how the common and preferred shares work? Leave a comment in the post talking about what type of action attracts you the most.



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