Stocks are exchange traded securities that give rights of ownership to their holder. Normally, they are bought and sold publicly on the stock market exchange; however, private transactions of stocks are also possible. Commonly, the purpose of issuing stock by a company is to raise capital needed for its operations. This process of raising funds allows for fast expansion of capital and company's businesses.
Illustration 1.01
Picture above shows the weekly chart of Apple stock which is the biggest of all stocks in terms of market capitalization.
Stocks are also called equities and their units are called shares. Owner of a stock is then called shareholder and emitent of the stock is called the issuer. Shares entitle a shareholder to the corresponding ownership of the company's assets and profit. However, a shareholder does not own the company itself; additionally, a shareholder does not take any legal liability for a company's actions. This is because a company is viewed as its own legal entity. Shareholders can be either major or minor. Major shareholders hold over 50% of outstanding shares in a company while minor shareholders hold less than 50% of outstanding shares in a company.
Stocks and shares
There is only a slight difference between the terms “stocks'' and “shares”. The term “stocks” is more general and can refer to a single company or broad group of companies. The term “shares'' usually refers to one particular company. However, nowadays, these two terms are used interchangeably.
Separation of ownership and control
Separation of ownership and control is associated with publicly traded companies. It refers to claims on management's decision making and claims on corporation's assets and profit. In publicly traded companies shareholders have limited rights to control a company; shareholders possess only legal claims to the company's profit and assets.
Voting rights
Voting rights represent a shareholder's ability to vote on policy matters within a company. These matters may include issuing new shares, appointing members to board of directors, approving acquisitions and mergers, etc.
Common stock and preferred stock
There are two categories of stocks: common stocks and preferred stocks. Common stocks entitle a shareholder to vote at shareholders' meetings and to receive dividends paid by a company. Common stocks have usually better yield over the long-term, however, at the cost of higher risk in case of liquidation of a company. Preferred stocks differ from common stocks in that they usually come with limited or no voting rights at all. In addition to that, preferred stocks have higher claims on dividends and distribution of assets by a company. This means that in case of liquidation of a company, preferred shareholders have priority over common shareholders. In such an event, common shareholders get paid only after creditors, bondholders, and preferred shareholders were paid.
Illustration 1.02
Illustration above shows the daily chart of Philip Morris Inc. stock. It also shows quarterly dividend intervals above the timeline (blue D in circle). Dividends paid to investors were equal to 1.20 USD per share.
Dividends
Dividend represents the distribution of corporate profits to eligible shareholders. Many stock titles tend to pay dividends to their investors on a monthly, quarterly, semi-annually or annually basis. These dividends can be either in the form of cash or stock. Typically, common shareholders are eligible for dividend payments when they hold the stock before the ex-dividend date. Some companies choose not to pay dividends and instead they reinvest corporate profit back into the company.
Stocks categorization
1. Growth stocks - Growth stocks have higher earnings and grow at a faster pace than the market average. They are normally bought with the purpose of capital appreciation. Growth stocks rarely pay dividends.
2. ncome stocks - These types of stocks pay dividends to their investors on a regular basis. Income stocks are commonly bought with the purpose to generate consistent income.
3. Value stocks - Value stocks are stocks that have a low price-to-earnings ratio.
4. Blue-chip stocks - Blue-chip stocks are the large companies that are well known and have a stable history of growth.
5. Penny stocks - These stocks are small public companies whose shares normally trade below price of 1 USD/per share.
Illustration 1.03
Picture above shows the monthly chart of Tesla Inc. stock. It is an example of the growth stock which appreciated more than 20 000% since 1st June 2010.
DISCLAIMER: This content serves solely educational purposes.
Illustration 1.01
Stocks are also called equities and their units are called shares. Owner of a stock is then called shareholder and emitent of the stock is called the issuer. Shares entitle a shareholder to the corresponding ownership of the company's assets and profit. However, a shareholder does not own the company itself; additionally, a shareholder does not take any legal liability for a company's actions. This is because a company is viewed as its own legal entity. Shareholders can be either major or minor. Major shareholders hold over 50% of outstanding shares in a company while minor shareholders hold less than 50% of outstanding shares in a company.
Stocks and shares
There is only a slight difference between the terms “stocks'' and “shares”. The term “stocks” is more general and can refer to a single company or broad group of companies. The term “shares'' usually refers to one particular company. However, nowadays, these two terms are used interchangeably.
Separation of ownership and control
Separation of ownership and control is associated with publicly traded companies. It refers to claims on management's decision making and claims on corporation's assets and profit. In publicly traded companies shareholders have limited rights to control a company; shareholders possess only legal claims to the company's profit and assets.
Voting rights
Voting rights represent a shareholder's ability to vote on policy matters within a company. These matters may include issuing new shares, appointing members to board of directors, approving acquisitions and mergers, etc.
Common stock and preferred stock
There are two categories of stocks: common stocks and preferred stocks. Common stocks entitle a shareholder to vote at shareholders' meetings and to receive dividends paid by a company. Common stocks have usually better yield over the long-term, however, at the cost of higher risk in case of liquidation of a company. Preferred stocks differ from common stocks in that they usually come with limited or no voting rights at all. In addition to that, preferred stocks have higher claims on dividends and distribution of assets by a company. This means that in case of liquidation of a company, preferred shareholders have priority over common shareholders. In such an event, common shareholders get paid only after creditors, bondholders, and preferred shareholders were paid.
Illustration 1.02
Dividends
Dividend represents the distribution of corporate profits to eligible shareholders. Many stock titles tend to pay dividends to their investors on a monthly, quarterly, semi-annually or annually basis. These dividends can be either in the form of cash or stock. Typically, common shareholders are eligible for dividend payments when they hold the stock before the ex-dividend date. Some companies choose not to pay dividends and instead they reinvest corporate profit back into the company.
Stocks categorization
1. Growth stocks - Growth stocks have higher earnings and grow at a faster pace than the market average. They are normally bought with the purpose of capital appreciation. Growth stocks rarely pay dividends.
2. ncome stocks - These types of stocks pay dividends to their investors on a regular basis. Income stocks are commonly bought with the purpose to generate consistent income.
3. Value stocks - Value stocks are stocks that have a low price-to-earnings ratio.
4. Blue-chip stocks - Blue-chip stocks are the large companies that are well known and have a stable history of growth.
5. Penny stocks - These stocks are small public companies whose shares normally trade below price of 1 USD/per share.
Illustration 1.03
DISCLAIMER: This content serves solely educational purposes.
Check us out at www.tradersweekly.com
