Practical Guide: How to Choose Between Shares and Stocks for Your Investment Portfolio

When we begin to explore stock market opportunities, we quickly face decisions that require understanding the fundamental difference between different types of securities. Although many investors use these terms interchangeably, the reality is that choosing between participations or shares has significant implications for our rights, liquidity, and potential returns.

The fundamentals: What your investment truly represents

To make informed decisions, it is crucial to understand what we acquire in each case. When we buy shares, we are acquiring fractions of the company’s capital and ownership. This makes us shareholders, meaning we own a real piece of the business proportional to our investment.

Participations, on the other hand, operate under a different scheme. Although they also represent parts of the company’s capital, they do not confer ownership in the same sense as ordinary shares. The issuance of participations is not limited to Corporations, but can be carried out by any business structure.

Rights you obtain: Much more than money

The clearest distinction between these products is reflected in the associated rights. As a shareholder, you have access to tangible benefits beyond dividends. You have voting rights at meetings, participation in strategic decisions of the company, and preemptive subscription rights when new shares are issued.

Holders of participations face a more limited outlook. Although they can receive dividends according to the company’s profits, they lack voting rights and access to shareholder meetings entirely. This positions them more as creditors than genuine owners.

There is also a crucial right in case of liquidation: shareholders have the right to a liquidation quota, while participants are outside this priority process.

How they are bought and sold: Access and flexibility

Operational experience varies radically depending on what you own. Shares are traded on regulated and organized markets, facilitating quick transactions without the need to know the buyer or seller. Platforms, brokers, and financial institutions facilitate this process, providing significant liquidity.

Business participations present greater operational challenges. Since they are not listed on the stock exchange, their buying and selling require direct agreements between parties. This greatly limits liquidity and complicates any attempt at a quick exit from the investment.

Price setting: Market versus business reality

Another differentiating factor is how the value of what you own is determined. Shares listed on the stock exchange have their price set by real-time supply and demand dynamics. Fluctuations reflect the collective market expectations about the company’s future.

Participations follow a completely different criterion. Their valuation is based solely on the company’s current financial statements and future income projections, without market mechanisms. This rigidity can be problematic if you need to sell under pressure.

Participations in funds: A special case

It is important to distinguish business participations from those linked to investment funds. When you invest in a fund, you acquire participations of that investment vehicle, which pools assets from at least 100 participants with a minimum established capital. These funds invest in bonds or shares according to their declared policy, delegating management to specialized companies.

Quick comparison: Decision matrix

The rights structure shows substantial differences. While ordinary shares confer voting, attendance at meetings, and preemptive subscription, participations are limited to receiving dividends. The duration also differs: shares remain indefinitely, while participations usually have predetermined terms.

Regarding trading, shares offer total agility in regulated markets with unknown counterparties, while participations require direct contact and mutual knowledge. Price discovery in shares depends on the market, while in participations it follows business fundamentals.

CFD on shares: The third option

Many traders operate with Contracts for Difference on shares as an alternative. These derivatives exactly replicate the behavior of shares: same price, same dividends, same volatility. However, owning a CFD does not make you an actual shareholder, eliminating all voting rights and participation in corporate decisions.

The order of precedence: An underestimated risk

There is a critical aspect rarely discussed but vital for “penny stock” investors or companies in trouble: the order of precedence in case of bankruptcy. Secured creditors are paid first, followed by other creditors. Shareholders always occupy the last position, which means that in corporate liquidations they can lose their entire investment.

Choose according to your investment profile

For frequent and short-term operations, shares are clearly superior. Their liquidity, ease of transaction, and lower operational costs make them ideal. However, if you seek active participation in business decisions and long-term goals, the voting right of ordinary shares can be decisive.

Business participations are suitable only in very specific contexts: strategic private investments where you have deep knowledge of the company and expect to stay long-term. Their lack of liquidity makes them unsuitable for investors who require flexibility.

Conclusion: Information as protection

The difference between participations or shares is not merely terminological. It involves fundamental rights, exit opportunities, and exposure to credit versus equity risk. Confusing both categories can result in acquiring products that do not meet our objectives.

In modern trading platforms, you will generally find shares in CFD format, which offers democratic access, reduced costs, and agile operation. Although it does not make the trader a legal shareholder, it allows participation in appreciation and dividends, which is precisely what most operators seek. The key is to be fully aware of exactly what you are buying, what rights it entails, and how it will behave under different market scenarios.