|
| |
Different kinds of
Stocks:
Common Stock - When people talk about stocks in general they are
most likely referring to this type of stock. In fact, the majority of stock issued is in
this form.
Common shares represent ownership in a company and ties the investor's fortunes
to the company. The price of the stock goes up and down, depending on how the
company performs and how invests think the company will perform in the future.
Some stocks pay dividends, which usually come from profits. If profits fall,
there is a chance that dividend payments may be reduced or eliminated
altogether. Investors get one vote per share to elect the board members,
who oversee the major decisions made by management.
Common stock yields higher
returns than almost every other investment over the long-term horizon. This higher return comes at a cost
since common stocks entail the most risk. If a company goes bankrupt and
liquidates, the common shareholders will not receive money until the creditors,
bondholders, and preferred shareholders are paid.
Preferred Stock - Many companies also this type of stock which represents some degree of ownership in a company but usually
doesn't come with the same voting rights. With preferred shares investors are usually guaranteed a fixed
dividend forever. For this reason, preferred stock is more like a bond than a
stock. This is different than common stock, which has variable
dividends that are never guaranteed. Another advantage is that in the event of
liquidation preferred shareholders are paid off before the common shareholder
(but still after debt holders). Preferred stock may also be callable, meaning
that the company has the option to purchase the shares from shareholders at
anytime for any reason (usually for a premium). Theoretically, the price of
preferred stock can rise or fall along with the common stock. In reality it
doesn't move nearly as much. A good
way to think of these kinds of shares is to see them as being in between bonds
and common shares. (If you don't understand bonds make sure also to check out our section on
bonds.)
Different Classes of Stock:
Common and preferred are the two
main forms of stock; however, it's also possible for companies to customize
different classes of stock in any way they want. The most common reason for this
is the company wanting the voting power to remain with a certain group; hence,
different classes of shares are given different voting rights. For example, one
class of shares would be held by a select group who are given ten votes per
share while a second class would be issued to the majority of investors who are
given one vote per share.
|
**Recommended Reading** |
|
How to Pick Stocks Like Warren Buffet
A $10,000 investment in Warren Buffett's original 1956 portfolio would
today be worth a staggering $250 million ... after taxes! This book
contains the answers and shows, step-by-profitable-step, how any investor
can follow Buffett's path to consistently find bargains in all markets:
up, down, or sideways.
|
When there is more than one class of stock, the classes are traditionally
designated as Class A and Class B. Berkshire Hathaway (ticker: BRK), the company
of Warren Buffett , has two classes of stock. The different forms are
represented by placing the letter behind the ticker symbol in a form like this: BRKa, BRKb
or BRK.A, BRK.B.Warren Buffett
is known as "the Oracle of Omaha", he is the Chairman of Berkshire Hathaway, and
arguably the greatest investor of all time. His wealth fluctuates with the
performance of the market, but for the last few years he has been reported to be
worth over $30 Billion, making him the 2nd richest man in the world behind Bill
Gates of Microsoft. Buffet is a value investor. His company Berkshire Hathaway
is basically a holding company for his investments containing public companies
Coca-Cola, American Express, Gillette, etc. and other privately owned companies
such as Geico.
Size matters: Small, mid or large cap Stocks
stocks are further broken down based on the size of the company (market
capitalization). Market capitalization, or cap, is one of the criteria investors
use to choose stocks, which are often categorized as small-cap, mid-cap, and
large-cap. Generally, large-cap stocks are considered the least volatile, and
small-caps the most volatile. The term market capitalization is sometimes used
interchangeably with market value. It is calculated by multiplying the number of
existing shares, or shares the company has issued, by the current price per
share. For example, a company with 100 million shares of stock with a current
market value of $30 a share would have a market capitalization of $3 billion.
-
|
You'll probably heard it
before, the market is up, the market is down... Everyday we hear
about the stock market on the news, radio, and in the paper. What
does it mean when they say: "The market turned in a great
performance today"? What is "The Market" anyway?
When people are talking
about "The Market" they are actually referring to an index such as
Dow Jones Industrial Average (DJIA), S&P 500, and the Nasdaq
composite. The Dow Jones Industrial Average (DJIA) contains 30 of
the largest and most influential companies in the United States.
It is hands down the most recognized index in the world to
represent how the stock market as a whole is doing. |
Small-capitalization (small-cap)
stock - Shares of relatively small publicly traded corporations, with a
total market value, or capitalization, of less than $1 billion, are typically
considered small-capitalization, or small-cap, stocks. Small-cap stocks, which
are tracked by the Russell 2000 Index, tend to be volatile in the short term,
since they are issued by young, potentially fast-growing companies whose
successes can't be guaranteed. Over the long term — though not in every period —
small-cap stocks as a group have produced stronger returns than any other
investment category. Mutual funds that invest in this type of stock are known as
small-cap funds.
-
Mid-capitalization (mid-cap) stock - A mid-cap stock is issued by a
corporation whose market capitalization is between $1 billion and $5 billion,
making it smaller than the large-caps tracked by Standard & Poor's 500-stock
Index (S&P 500) but larger than small-caps. Investors buy mid-cap stocks for
their growth potential and their prices, which are typically lower than for
large-caps. At the same time, these companies tend to be less volatile than
small-caps, in part because they have more resources with which to weather an
economic downturn. Mutual funds that invest in this type of stock are known as
mid-cap funds.
-
Large-capitalization (large-cap) stock - The stocks of companies with
market capitalizations of $5 billion or more are known as large-cap stocks.
Market capitalization is figured by multiplying the number of existing shares by
the current share price. Mutual funds that invest in this type of stock are
known as large-cap funds.Large-cap stocks, which are tracked by Standard &
Poor's 500-stock Index (S&P 500), are generally considered less volatile than
stocks in smaller companies, in part because they have larger reserves to carry
them through economic downturns. However, market capitalization is always in
flux. Today's large-cap stock can become a small-cap stock if the share price
plunges either in a general market downturn or as a result of internal problems.
And the opposite is true as well, as the fairly recent growth of many of the
country's largest companies demonstrates.
Different categories of Stock:
-
Growth Stocks - These have good prospects for growing
faster than the economy or the stock market in general. Investors buy them
because of their good record of earnings growth and the expectation that they
will continue generating capital gains over the long haul. Most growth stocks
either pay very little or no dividends because management reinvests earnings to
feed the growth and have high stock prices relative to their current earnings or
asset (high P/E ratios or high price-to-book ratios).
A good example of a growth stock is online auction site EBAY.
-
Value Stocks - High quality
companies that are out of favor with the market. These companies are opposite of
growth stocks in that, they have low P/E ratios, price-to-book ratios and high
dividend yields.
|
What
are Penny Stocks?
Stocks that trade for
less than $1 a share are often described as penny stocks. Penny
stocks change hands over the counter (OTC) and tend to be
extremely volatile. Their prices may spike up one day and drop
dramatically the next, reflecting the unsettled nature of the
companies that issue them and the relatively small number of
shares in the market place.
While some penny stocks
may produce big returns over the long term, many turn out to be
worthless. Institutional investors tend to avoid penny stocks, and
brokerage firms typically warn individual investors of the risks
involved before handling transactions in these stocks. However,
penny stocks are sometimes marketed aggressively to unsuspecting
investors..
|
- Blue Chip Stocks - Companies
known nationally for the quality of its products or services, its reliability,
and its ability to operate profitably in good and bad economic times. These
stocks can sometimes be classified as growth stocks such as Coca-Cola and
American Express. Investors with little tolerance for risk buy these stocks for
their reliability and high quality earnings. They tend to generate decent
dividend income with some growth. Since provide a combination of growth and
income, some blue chip stocks can also be considered Growth and income stocks.
- Income Stocks - These companies
pay high current income in the form of dividends and raise them regularly.
Electric utilities and banks often fall into this category. As you can imagine,
many investors in this type of stocks are retirees and others in need of high
current income from stocks. The dividend yield on Real Estate Investment Trust (REITs)
are also very generous since REITs are required to distribute as much as 90% of
their income.
- Growth and Income stocks -
Companies that provide a combination of growth and income. These are
well-established companies that pay regular dividends and increase in value at a
regular, if modest, rate. Very similar to blue chip stocks.
- Cyclical Stocks - Cyclical
stocks tend to rise in value during an upturn in the economy and fall during a
downturn. They usually include stocks in industries that flourish in good times,
including airlines, automobiles, steel, chemicals, travel and leisure, and any
business dependent on home building.
- Defensive Stocks - In contrast
to cyclical stocks, stocks in industries that provide necessities such as food,
electricity, gas, and health care products, or those that provide services that
reduce the expenses of other companies, tend to be more price-stable. These
stocks are also sometimes called countercyclicals.
- Speculative Stocks - Internet
and high-tech stocks are litter with these. Why? because these are young
companies in a fast growing area with profits for the companies were
acknowledged to be years away. Buyers of speculative stocks have hopes of making
a killing (make a lot of money) in a short-term. Most of these stocks don't do
well in the long run, so it takes big gains in a few to offset your losses in
the many.
Next-->>
How and where do Stocks trade?
| |
|
|
Jokes:
|
|
|
Other Funny Stuff:
|
|
|
|
