Thursday, November 16, 2006

Types Of Stocks

The amazing dotcom market in the late '90s made people think that stocks were the magic answer to instant wealth with no risk. The ensuing dotcom crash proved that this is not the case. . Stocks can (and do) create massive amounts of wealth, but they aren't without risks.the only way is to educate yourself and understand where you are putting your hard earned money.
Types Of Stocks
Common or ordinary Stock
represent ownership in a companyand a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management. Over the long term, common stocks by means of capital growth, yields higher returns than almost every other investment. 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: represents some degree of ownership in a company but usually doesn't come with the same voting rights. investors are usually guaranteed a fixed dividend forever on preferred stock while dividends on common stock are variable and are never guaranteed. 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). Some people consider preferred stock to be more like debt than equity. . A good way to think of these kinds of shares is to see them as being in between bonds and common shares.
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; therefore, 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.

No comments: