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Types of Stock

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erick hernandez

on 4 June 2013

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Transcript of Types of Stock

Understanding Stocks Growth, Income, Value: Speculative Domestic or Foreign Economic Response Common Stock Most investors purchase common stock. Common stock gives investors a basic share of ownership in the company as well as voting rights (usually one vote per share of stock). Voting rights are important when it comes to electing the company's board of directors. The board of directors represents all of the company's stockholders and makes major business decisions for the company. Common stockholders also vote on matters such as company objectives. If the company goes bankrupt, common stockholders are entitled to company assets, but only after the company has me its obligations to bondholders and preferred stockholders. Most stocks can be classified as growth, income, or value. Growth stocks belong to companies with sales and earnings that grow at high rates. Because these companies typically reinvest these earnings back into themselves, growth stocks either pay very small dividends or do not pay dividends at all. They are ideal for long-term investors who are trying to achieve capital appreciation. Specualtive stocks belong to companies that have not yet established themselves on the market, usually start-up companies that are developing new ideas and products. Thses stocks have potential for high price increases, but with no track records to prove themselves, they are risky investments. They are not for investors who are faint of heart! Domestic stocks are issued by companies in the country where you live; foreign stocks are issued by companies in other countries. Many investors choose foreign stocks as a way to diversify their portfolios (spread out their investment dollars) and recieve potentially higher rates of return. Stocks can be further classified by their response to the current state of the economy. Cap Size Stocks can be classified according to the company's market capitalization, or cap size. Market capitalization is the total value of a companu's outstanding shares. It is calculated by multiplying the number of shares by the price per share. Different sources give different ranges, but in general - large-cap companies are those worth over $8 billion; mid-cap companies are those worth between $1 billion and $8 billion; and small-cap companies, worth less than $1 billion. Buying Stocks For Beginners To truly understand different types of stocks, you must know what a stock is and what it does. A stock is when an investor gets a share of a company and a share of the money. What is it?: What does it do?: When you invest in a stock, you follow a process and depending on the stock bought and how well it's doing you could either lose or gain money. The Process: 1. Find a place to buy stocks at. Look around. Stock market trading can be pretty overwhelming especially for beginners. There are lots of online brokers that have a straightforward process of buying and selling stocks. 2. Take advantage of stimulation games. 3. Learn to pick stocks. Fantasy stock trading games and simulation trading provide good platforms for you to learn the basics of the stock market. You should NEVER rush into buying stocks, especially if you're a beginner. There are going to be lots of new traders who are anxious to place their first orders because they still do not know when to enter the market. Here are a couple of good tips for you. If you are still learning to buy stocks, do not focus on when to buy stocks. Concentrate your efforts in learning what stocks to buy rather than focusing on when to buy.
Study different stocks and pick the right one that has the brightest prospects.
Pick stocks that are known as market leaders Types of Stock: 1. Common Stock
2. Preferred Stock
3. Cap Size
4. Growth, Income, Value;
5. Income Stocks
6. Value Stocks
7. Domestic or Foreign
8. Economic Response
9. Defensive Stocks
10. Speculative
11. Penny Stocks Growth Stocks: Income Stocks: Value Stocks: Income stocks belong to companies with a reputation for paying out high dividends. Income companies are usually mature companies that are not growing as rapidly as they once were. However, just because their growth rate has reached a plateau doesn't mean that income companies are no longer profitable. Income stocks are ideal for investors looking for high dividends with low risk. Value stocks are named so because they are good "bargains." These stocks have been overlooked by investors and are, therfore, trading at lower-than-average prices. Investors who purchase value stocks expect them to appreciate in value over the long term. Value stocks are ideal for investors who have the time and patience for their value to go up. Preferred Stock Like common stock, preferred stock gives stockholders a basic share of ownership in the company, but it comes with some extra rights as well. For example, preferred stockholders are entitled to fixed dividends, dividends that are either a percentage of the stock value or a specific dollar amount. Also, if a company goes bankrupt, it is obligated to pay its preferred stockholder before it pays its common stockholders. Preferred stockholders do not, however, enjoy the voting rights that common stockholders do. Penny Stocks Penny stocks are speculative stocks that sell at very low prices, usually $1 or less per share. One thing to keep in mind is that if a stock's price is extremely low, there is usually a good reason for it. By: Erick Hernandez & Lesly Castellanos Defensive Stocks Defensive stocks belong to companies that are expected to do well regardless of the state of the economy. Think of goods and services that are necessary no matter what - food, pharaceuticals, and utilities such as electricity and gas. Even during periods of economic recession, the stock companies in thses industries will hold value. Cyclical Stocks The value of cyclical stocks goes up and down with the economy. If the economy is poor, cyclical stocks do poorly; if the economy is good, cyclical stocks fo well. For example, when the economy is booming, more people build houses. During these times, companies in the construction industry do well. But when the economy is in a state of recession, construction slows down, and construction companies' stocks take a hit.
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