What are equities? An in-depth look at investment tools that offer opportunities to get rich

Equity securities are essential investment tools for those who want to own a part of a business rather than just be a creditor. When you invest in equities, you’re purchasing the right to become a shareholder of the company, which can lead to higher returns but also involves higher risks. This article will help you understand equities more deeply, including comparisons with debt securities and stocks, so you can make informed investment decisions.

Equity Securities: Owning a Potentially Growing Business

Equity (stocks) represents ownership in a business. Investors holding equity securities have rights to a share of profits and voting rights in company decisions. This type of investment carries higher risk than debt securities because, in the event of bankruptcy, equity holders are paid after creditors from remaining assets.

Types of equity securities you should know include:

Common Stock - Holders are entitled to dividends from company profits and have voting rights at shareholder meetings, giving them influence over business policies. If the company liquidates, common shareholders receive remaining assets after paying creditors and preferred shareholders.

Preferred Stock - A special type of security with a predetermined dividend rate. Preferred shareholders usually do not have voting rights but have priority over common shareholders in receiving dividends and in liquidation.

Warrants - Options to buy company shares at a set price in the future. Warrant holders can benefit from rising stock prices.

Equity Markets: Where Are They? Know the Main Markets

The equity market is where investors buy and sell stocks, divided into two main types:

Primary Market - The market for issuing new securities. Companies raise funds directly from investors via two methods:

• Private Placement (PP) - Offering to no more than 35 individuals or financial institutions, according to SEC regulations.
• Public Offering (PO) - Offering to the general public, requiring approval and compliance with SEC procedures.

Secondary Market - The market where already issued securities are bought and sold among investors. New and experienced investors can trade here. The secondary market is divided into three categories:

• The Stock Exchange of Thailand (SET) - For large companies with paid-up capital of at least 300 million THB.
• Market for Alternative Investment (mai) - For mid- and small-sized promising businesses with paid-up capital starting at 20 million THB.
• Over-the-Counter (OTC) - Direct transactions between buyers and sellers.

Equity Mutual Funds: How to Invest Without Picking Stocks Yourself

Equity mutual funds pool money from many investors managed by professional fund managers. Instead of investing alone, you benefit from:

• Expertise - Access to knowledgeable teams selecting promising securities without needing deep market knowledge.
• Diversification - Investments spread across multiple stocks, companies, or asset types like common stocks, preferred stocks, warrants, and derivatives.
• Convenience - Easy buying and selling of fund units without detailed stock analysis.
• Potential for Higher Returns - Dividends paid periodically or daily income from fund distributions.

Benefits of Equity Securities for Investors

1. Ownership in a Business - Unlike lending money, you become a part-owner, sharing in profits.

2. High Return Potential - Stock prices can increase significantly, especially for growing companies.

3. Voting Rights - Common shareholders can influence company policies through voting at meetings.

4. Diverse Investment Options - Various types of equities, from common stocks to warrants, matching different risk profiles.

5. Regular Dividends - Many companies pay dividends regularly, providing additional income.

Risks of Equity Investments and How to Protect Yourself

Investing in equities involves risks. You should understand and prepare for:

Price Risk - Stock values can drop suddenly due to market changes.

Business Risk - If the company faces problems, your securities may lose value or become worthless.

Credit Risk - The company’s ability to pay debts or dividends may decline.

Economic and Political Risks - External events like economic downturns, political instability, or unforeseen crises can impact the entire market.

Protection Strategies - Conduct thorough research on your investments, diversify across stocks and funds, and review your portfolio every 3-6 months to adjust according to current conditions.

Equity vs. Debt Securities vs. Stocks: What’s the Difference?

Once you understand equities, compare them with debt securities and stocks for clarity.

Definitions

Equity Securities - Represent ownership in a business, with rights to profits and decision-making.

Debt Securities - Represent a loan to a company or government, with fixed interest payments.

Stocks - A form of equity security indicating ownership in a company.

Risk and Return

Contract Characteristics

Equity Securities - No formal repayment contract; relationship is based on business association, which can change with company circumstances.

Debt Securities - Have clear contractual terms for repayment, interest rate, and schedule, legally binding the issuer.

Priority in Liquidation

In case of liquidation, debt holders are paid first, followed by preferred shareholders, then common shareholders. This means equity carries higher risk.

Summary: Equity Securities Are for Those Ready to Grow with the Business

Equity securities are high-potential investment tools but come with significant risks. Successful investing requires thorough business analysis, understanding stability and growth prospects, and evaluating management credibility.

If you seek high returns and can accept risk, equities are a good choice. Remember, each investment should involve careful research, periodic review every 3-6 months, and portfolio adjustments aligned with your goals and risk tolerance.