Products Directly Invest in Companies with Equities

Directly Invest in Companies with Equities

Want to invest in a company directly and have the right to express an opinion as a shareholder? Equities offer opportunities in the form of long-term return potential. However, they are subject to market fluctuations and risks. Carefully considered diversification of your portfolio is required to avoid risk concentration.

Equity as a long-term investment

Equity As a Long-Term Investment

If you want to invest directly in a company listed on the stock exchange, purchasing equities is the most common way to invest. As a shareholder, you have proprietary and membership rights with regard to the company in which you have invested. These rights generally include subscription, dividend, and voting rights. Shareholder rights can be structured very differently depending on the company and the share class. Equities are usually traded on the stock exchange. This makes it easier to purchase or sell the security but also results in considerable price fluctuations. These depend not only on the success of the company but also on the general market development and investor sentiment.

With a securities safekeeping account from Credit Suisse, you can purchase equities across the world.

Dividends As Profit-Sharing

As a shareholder you benefit from price gains but you should also expect price losses. Many joint-stock companies also pay an annual dividend as a share in the net profit for the year. Due to the price fluctuations, equity investments are particularly well-suited as a long-term investment because market fluctuations can be compensated for over time.

What You Need to Know about Equities

Large caps are equities with a particularly high market capitalization. They are generally securities of large, international and established companies with strong profitability. Large caps are liquid equities, therefore the expected return is often limited. With small caps higher returns are possible, although the risks (such as insolvency) are higher.

In addition to price gains, shareholders can achieve a return through the distribution of dividends. However, it is the governing bodies of a joint-stock company that decide whether dividends are paid out and in what quantity. Some companies regularly pay high dividends, while others retain the profit for research and development, for example. If you are interested in a regular pay-out, it is worth looking at the dividend policy over recent years.

In the case of equities, a distinction is made between registered shares, bearer shares, and preferred shares. There are deviations with regard to the voting right and proprietary benefits. With preferred shares, in the event of capital increases, you may be entitled to a higher dividend or a greater subscription right, but have no voting right. As an owner of a bearer share, you are considered a shareholder with all the corresponding rights. With registered shares, you can register in the shareholder register.

Potential Risks

Potential Loss

Investors with an investment in equity securities issued by a company can suffer a partial loss due to fluctuations in the value. If the company goes bankrupt, the investor may also lose his or her entire investment.

Market Risk

The investor runs the risk that the price of the share can fall during the holding period. The price of equities is determined by supply and demand on the stock exchange or, in the case of an over-the-counter (OTC) market, directly between two parties. The share price may be affected by changes in the investors' behavior or risk appetite. As a result, the price of a stock can deviate strongly from the theoretical value of the company.

Company-Specific Risk (Issuer Risk)

By buying an equity, the shareholder acquires a share in the company's risk capital. If the company becomes insolvent, claims by shareholders will only be fulfilled after all claims by creditors have been satisfied. As a result, investors may lose all of their invested capital if the company goes bankrupt.

Liquidity Risk

The liquidity of a share reflects the investor's ability to buy or sell the shares at market price on the stock exchange on any given trading day. The investor bears the risk of not being able to buy or sell the shares within a reasonable amount of time at market price or without affecting the market. Regulatory and statutory restrictions, listing rules, and changes to these rules (e.g., the ban on short selling, disclosure obligations, and registration requirements) also affect share prices and liquidity.

Foreign Exchange Risk

Investors may be exposed to foreign exchange risk if the share is listed in a currency other than their home currency.

Risk Concentration

Investors who purchase many shares in the same company run the risk of disproportionately high losses if the company exhibits weak economic growth. Carefully considered diversification of the portfolio is required to prevent risk concentration. 

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