Securities

Remember Linus from Peanuts? He was the guy always carrying the blankie. And always sucking on his thumb. Yeah. Ooh. Gross. The blanket was his…security. Yeah…ahhh, see how we made that connection? His blanket was something that he relied upon. Leaned on. Nurtured. It was certainty.

That “secur” you see in the beginning of “security” isn’t there by accident. Financially speaking, a security...secures money. Or at least value. When you buy a security, you give money to someone or something and, in return, you get a promise of some value.

Securities come in two flavors, generally: equity or ownership. A share of stock is a security entitling you to whatever percentage ownership in that company the share represents. Like...if you bought 500 shares in a company with 10 million shares outstanding, that security represents ownership of 500 divided by 10 million, or .00005 percent.

So that’s equity. There’s also debt as a security. Like bonds. The bond that Apple offered at 4 percent yield that pays off in 10 years? That’s a bond security. And note that securities can carry different guarantees. That is, the underlying promise is that the security represents, or secures, different elements. Like…a senior bond security secures that those bonds will be paid off ahead of junior bonds, which will be paid off before, say, subordinated junior debentures.

So you can see that there are multiple classes and flavors and types of securities all falling under this tent…which, fortunately for everyone, doesn't smell like it's been sucked on.

Good grief. Come back for another finance lesson a la Shmoop, and hopefully Linus will have washed his thing (er, his blanket) by then.