Stocks

What Are Stocks?

A company has 10,000 outstanding shares (stocks that are attainable to investors) and one individual wants to invest and buys 2,000 shares, that person now owns 20% of that companies assets.

Appreciation

 

What drives people to invest in stocks is the potential for growth. If an individual decided that they wanted to be an investor and put their money into the stock market they would first need to pick a stock to purchase. The perfect one is found and the individual buys 1,000 shares at $1.00 a share. If that stock grows by a full dollar, the investors have effectively doubled their investment.

• Initial investment: 1,000 Shares at $1.00 = $1,000.00
• Sold after appreciation: 1,000 Shares at $2.00 = $2,000.00

This can be a huge advantage and is a strength amongst other investments. However, when the stock depreciates, so does their investment.

• Initial investment: 1,000 Shares at $1.00 = $1,000.00
• Sold after depreciation: 1,000 Shares at $0.50 = $500.00

Therefore, when looking to invest into any sort of shares, do your due diligence to maximize profits and minimize losses.

Common Shares

What Are They?

 

Common stocks are a representation of a companies ownership. Common stockholders have control with voting on policies and electing a board of directors. However, there is a multitude of different securities a company can have. This makes common stocks at the bottom of the list in terms of priority. For example, a company needed to dissolve the entire company and liquidate its assets. Common stockholders would be the last ones to receive any sort of return.

Why Are They Worth It?

 

Hearing that investment is at the bottom of a companies priority list can be discouraging. However, there are many advantages to owning a common stock can have. One would be the chance for a higher payout in terms of a reward. Common stocks have a higher risk than other investments. However, they outgrow many other investments in the long run. When making a financial plan, this is definitely an investment that should be in your portfolio.

Types of Stocks

 

There are a few types of stocks that are named based off of how they perform within the market. There are growth stocks whose value increases based on the companies earnings if the earnings increase than so does the price, this indicates a strong growth potential.

 

Value stocks have a lower price, however, they do pay out dividends to shareholders which can be very appealing. Usually, companies that are new will have more volatility because they are newer, larger companies tend to be more stable and traded more often. Both are amazing investments to add to a financial plan even though they both have considerable differences.

Preferred Stocks

What Are They?

 

Preferred stocks are shares which holds a certain level of priority above common stocks. This means if a company goes bankrupt or its assets they are entitled to be paid out before common shareholders. The downside to being an owner of these particular stocks is that they do not hold any voting rights.

Cumulative, Non-Cumulative, Participating, Convertible

 

Cumulative Stocks: The company must pay their shareholders all dividends, including the shareholders that were previously not able to acquire their dividend payments.

 

Non-Cumulative: Owners of these stocks are not entitled to claim for any unpaid dividends. If a company makes the decision to not pay out any dividends to their shareholders for a year, the owners of these shares are not able to retrieve it on a future date.

 

Participating Preferred Stocks: Participating shareholders are entitled to receive regular dividend payouts of preferred stock. However, they can also receive and an additional amount that is based on predetermined requirements. The additional dividend is paid out if common shareholders are being paid out dividends greater than the predetermined per-share amount.

 

Convertible Stocks: These are essentially shares where an individual would like to convert a portion of the preferred stocks to common ones after a certain date. The value of these convertible stocks is dependent on how well the common stock is doing.

Voting

 

Voting right is the right that those who hold common stocks have. common stockholders make decisions about issuing securities, how the board of directors is made up, large company changes and company policies.

Eligibility

 

Usually, only a record owner is eligible to vote, none of which are are owners of preferred stocks. There is a record of all the names of those who are eligible to vote. Those who are not on the list will not be able to vote.

Third Party Voting

 

Shareholders will be able to entrust another person, company or entity if they decide not to vote on their own. When they do this, the person is able to make a vote on their behalf without consulting them at all. However, when they give this right away, the original individual still retains all of their stocks (shares of the company).

How Does Voting Impact The Company?

 

For larger, public companies, investors have a lot more power than privately owned corporations. This is because, in the larger companies, investors can vote in the directors. Also, they hold a large number of outstanding shares. Privately owned companies would have their officers, directors, and VPs owning most of the shares. Although the minority shareholders have stocks, it’s not a sufficient amount of shares to be able to make a difference.

How Trading Works

 

When trading stocks, there are buyers and sellers. If you were to purchase a certain amount of share from a company, you’d put in a request through a brokerage. Once that request is put in, the trade will go through once someone is selling their current shares for that same amount. In a market that is very liquid, these trades can happen almost instantaneously. This is why it is called trading because you’re trading your money for someone else’s shares and vice versa.