Different Types of Stock
The different types of stock are what confuse most first time invest
ors. That confusion causes people to turn away from the stock market
altogether, or to make unwise investments. If you are going to play
the stock market, you must know what types of stock are available a
nd what it all means!
Common Stock is a term that you will hear quite often. Anyone can pu
rchase common stock, regardless of age, income, age, or financial st
anding. Common stock is essentially part ownership in the business y
ou are investing in. As the company grows and earns money, the value
of your stock rises. On the other hand, if the company does poorly
or goes bankrupt, the value of your stock falls. Common stock holder
s do not participate in the day to day operations of a business, but
they do have the power to elect the board of directors.
Along with common stock, there are also different classes of stock. T
he different classes of stock in one company are often called Class A
and Class B. The first class, class A, essentially gives the stock o
wner more votes per share of stock than the owners of class B stock.
The ability to create different classes of stock in a corporation has
existed since 1987. Many investors avoid stock that has more than on
e class, and stocks that have more than one class are not called comm
The most upscale type of stock is of course Preferred Stock. Preferre
d stock isn’t exactly a stock. It is a mix of a stock and a bond. The
owner’s of preferred stock can lay claim to the assets of the compan
y in the case of bankruptcy, and preferred stock holders get the proc
eeds of the profits from a company before the common stock owners. If
you think that you may prefer this preferred stock, be aware that th
e company typically has the right to buy the stock back from the stoc
k owner and stop paying dividends.
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