Practical Guide: Learn about the main categories of stocks to optimize your investment portfolio

When you decide to participate in stock markets, understanding the structure of different investment options is essential for making sound decisions. The stock exchange offers multiple investment choices, each with distinct characteristics that directly impact your returns and risk level. This analysis will help you navigate the most relevant variants and discover which one best aligns with your profile as an investor.

Fundamentals: What do shares represent in the market?

Shares are one of the most significant tools in the stock ecosystem. When you acquire a share, you automatically become a shareholder of the company, owning a portion of its share capital. However, it is important to clarify that not all shares of a company are publicly traded; many remain in the hands of founders or majority shareholders.

Your position in the company translates into specific rights and responsibilities. Major shareholders exert greater influence on corporate decisions and access to meetings, while those with smaller holdings receive benefits proportional to their investment. Investors’ returns come from two sources: the appreciation of the share price in the market and dividends distributed from company profits.

Price movements are primarily driven by the law of supply and demand. When a company grows and improves its fundamentals, its share value tends to rise. During periods of economic difficulty or corporate crisis, quotations experience significant declines. This dynamism presents both opportunities and risks for capital investors.

The three main categories of equity investment

Ordinary shares: the classic option for active participation

This type constitutes the most common modality in stock markets. Companies issue them as a mechanism to finance themselves without resorting to bank debt, attracting investors seeking participation in business growth.

Ordinary shareholders enjoy significant rights: they can vote at regular meetings, influencing the company’s strategic direction. Those with larger holdings have greater voting weight. Additionally, they receive profit distributions proportionally to their shareholding.

Unlike instruments with a fixed term, these shares have no expiration date; they remain valid as long as the company continues operating. The owner maintains indefinitely their rights over that business fraction.

However, this modality involves considerable volatility. Prices fluctuate widely depending on company performance and market conditions. Selling can sometimes be complicated, requiring finding an interested buyer. The maximum risk is corporate bankruptcy, where the investment reduces to zero.

Preferred shares: security at the expense of control

These shares represent an alternative for investors prioritizing stability over influence. Unlike ordinary shares, they do not grant voting rights in corporate decisions but offer higher economic compensations.

The main benefit lies in predetermined dividends. Regardless of company performance, preferred shareholders receive fixed and guaranteed returns. When a company generates profits, these dividends are distributed first, ensuring their payment before ordinary shares.

In insolvency situations, preferred shareholders have priority in recovering their investment over ordinary shareholders. This structure is attractive for companies that need capitalization without ceding decision-making power.

For investors seeking to generate predictable passive income, this category is suitable. Liquidity is higher: selling the position is simple and quick, allowing access to cash in short times. A crucial aspect: if the company experiences exceptional expansion, ordinary shares capture higher gains through staggered dividends and price appreciation, while preferred shares maintain fixed returns.

Privileged shares: hybrid with dual benefits

This category acts as a bridge between the previous two. It combines voting rights of ordinary shares with the security of fixed dividends of preferred shares. Its issuance requires majority approval of the shareholders’ meeting, making them less common in the market.

Other relevant classifications based on specific characteristics

Beyond the three main categories, there are other variants classified by different criteria:

By ownership: Registered shares are issued in the name of a specific owner, formally recorded. Bearer shares, on the other hand, belong to whoever physically holds the certificate, without the need for nominal registration.

By quotation: Those traded on stock exchanges are freely negotiated in organized markets. Private shares remain outside the stock market, usually in small and medium-sized companies, with more complex transfer procedures.

By validity: Redeemable shares have a time limit; after the established period expires, they cease to be valid and lose associated rights. Own shares belong to the issuing company itself, never distributed to external investors, remaining under corporate control.

For speculative operations: Short-selling shares allows betting on a decline. The investor “borrows” the share from the broker, sells it at the current price expecting a subsequent drop, and buys it back at a lower value, profiting from the difference. This mechanism involves high risk if the price rises instead of falling.

Comparison: distinctive features of each modality

Among ordinary, preferred, and privileged shares, the fundamental differences are clear. Ordinary shares grant voting rights with variable dividends and potentially exponential gains but carry total risk. Preferred shares sacrifice voting rights for fixed income and security, facilitating sale. Privileged shares aim to balance both worlds.

Regarding secondary classifications, listed shares offer maximum liquidity and easy operability. Short-selling provides access to gains in bear markets, though with greater operational complexity. Own shares indicate corporate confidence in their own valuation, suggesting a bullish potential.

Practical strategies for investing based on the type of share

Listed shares: easier entry

For those wishing to start, listed shares present the most straightforward path. Let’s take a real case: Microsoft in July 2022 opened at 254.84 USD and closed at 277.64 USD, generating 22.80 USD profit per contract. Doubling the amount multiplies benefits proportionally. However, commissions and overnight financing costs are deducted.

A buying operator also receives dividends if holding the position during the ex-date. Microsoft paid dividends on August 17, 2022, benefiting those involved in the operation.

Short operations: gains in bearish markets

The same Microsoft in August 2022 experienced a drop from 275.36 USD to 260.51 USD, generating 14.85 USD profit for short sellers. For short positions, dividends represent a cost, penalizing the operation.

The mechanics are simple: the broker lends the share, you sell it, wait for the price to fall, buy back the same amount, and return the loan. The difference is your profit. It requires a broker that facilitates lending and synchronized orders.

Ordinary shares: long-term investment with complexity

Acquiring ordinary shares requires formal documentation and a contract. Selling involves finding a buyer and executing legal endorsement procedures. Significant investments confer greater influence in meetings and better profit distributions.

Preferred shares: less complex than ordinary

Although they also require formal procedures, their higher liquidity simplifies entry and exit. Ideal for those seeking predictable income without the intention of corporate control.

Final considerations for your investment decision

Shares tend to appreciate in value over time, but the path is not linear. Periods of slow growth alternate with sharp and pronounced declines. Operational traders take advantage of daily liquidity by buying and selling multiple times. Traditional investors play the long term.

Before investing capital, conduct a thorough analysis of the target company: balance sheets, profits, projections, competition. Evaluate whether you seek traditional investment or active trading. The former requires patience and acceptance of low liquidity in some cases; the latter demands daily monitoring and constant risk management.

Short selling promises quick gains but with maximum risk if the market rises instead of falling. Stock markets historically rise slowly over years, but when they fall, they often do so brutally in days or weeks. Consider this when designing your strategy according to the type of share you choose.