Invest in the Stock Market: Stocks
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Rare is the educated person who knows nothing about stocks. Stocks are great ways for investors to increase their money. Investing in stocks poses great risk, as stocks can go bankrupt, leaving you with nothing – but such risk means chance of great returns as well. Historically, stocks have outperformed other forms of investments, such as bonds or savings accounts.
With today’s advanced trading technology, nearly everybody can invest their money in stocks. Yes, nearly everybody – but investing in stocks is a lot more than just buying them and sitting in front of the TV, waiting for your money to grow by leaps and bounds. To be a successful investor – or stock trader, if you want to get a feel for it already – you’ll need to have an excellent grasp on the basics of stocks and the stock market in general.
Stocks
A stock is a share in the ownership of a company, and is also called share or equity. Buy more stocks, and your ownership of a company increases. While it is understandable to feel exultant knowing that you are, in a sense, a ‘boss’ of the company, it is worth remembering that the company may have millions upon millions of shares, and what you actually own as an individual investor is just a small crumb of the cake.
When you own stocks, you have a claim on the company’s assets and earnings, as well as any voting rights attached to those stocks. This means three things: (1) if and when the company goes bankrupt, you’ll receive what’s left of the company’s assets after all the creditors have been paid; (2) you are entitled to a portion of the company’s profits, with dividends as a common form of payment; and (3) you can make one vote per share to the elect the company’s board of directors at annual shareholders’ meetings.
Stocks come in different classes, with common and preferred stocks being the two main categories. Common stocks are what we’ve just discussed – high-risk but possibly high-return investments. On the other hand, preferred stocks usually present a fixed dividend forever; essentially, low risk but low returns. Preferred stocks usually come with different voting rights as common stocks. While these are the two common forms of stock, companies may have custom categorizations, leading to the two traditional designations, Class A and Class B. For example, the two stock classes of CompanyX are represented as “CPXa, CPXb” or “CPX.A, CPX.B”, with “CPX” as the company’s ticker. The ticker symbol is a unique alphabetic name that identifies the company’s stock.
Finance industry professionals have coined several slang terms for stocks. One of them is the blue chip stock, a term applied to the stock of an established and usually large company (the “blue chip”). Examples of such companies are General Electric and IBM. Blue chips are the high-value companies who seem to endure for many, many more years to come. Blue chip stocks are pricey, but low risk ones. Another term is the speculative stock, also called a “penny stock”. In contrast to blue chip stocks, speculative stocks offer high risk and chance of high returns, as they’re usually new to the stock market.
Stocks are issued by a company to raise capital, and are traded in the stock market. The initial public offering (IPO) marks the first time that a company has sold stocks in the market.
Next: Invest in the Stock Market: The Stock Exchange
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