Stocks - Hmmm… Not Sure?
photo credit: thinkpanama
I will try to simply explain the terms that are used when talking about investing. If you want to understand about the world of finance, I think you should start with the very basics, like the language. Reading newspapers online is a great way to learn the language, and look up words in a financial dictionary.
Today the word is “STOCK“. We hear this word all the time, but what exactly does it mean?
What Are Stocks?
Stocks are units of ownership in a corporation represented by shares (we’ll talk about those later on).
Basically, a stock is a certificate that entitles you to a small fraction of a corporation. So, it’s equal to the percentage you own in a company. When you own a stock, you are referred to as a shareholder or a stockholder.
A stock also gives you voting power, because you own a certain amount of the company, so the more stocks you own, the more decision making power you have.
Types Of Stocks
There are many types of stocks, according to their value, here are some:
- Penny stocks - the lowest value, traded over the counter (not in a major exchange). They can represent a very small, local company.
- Blue chip stocks - well-established companies, good profits. If you seek some degree of safety and stability, these are the kind of stocks you should get.
- Income stocks - offer a higher dividend in relation to their market price. Usually they represent a very stable industry, such as telecommunications and utilities.
- Growth stocks - the profits from these stocks are typically re-invested to expand the business. When the business grows, their stock value grows as well.
- Value stocks - are stocks that investors see as undervalued and believe they will eventually grow.
And the list goes on…. (a more comprehensible list should make the object of another post).
There are also different classes of stocks that the company can decide, like class A or class B. The difference is in the voting power, class A might be given more votes per share than class B.
Although stocks can be classified in many ways, there are two main kinds: common stocks and preferred stocks. The difference is that preferred stocks act a bit like bonds, they have a fixed dividend, and they are paid before the common stock holders. Also, in an event of a bankruptcy, the preferred stock owners will be paid off first.
Conclusion
If you are serious about money, why not start by learning it’s language? Doesn’t it make sense? And since we had to start somewhere, I thought explaining “stock” would pave the way to more “talk” about the world of investing.
In the hopes that it was short and clear, I will try to keep it as clean as possible and post more helpful “definitions”.
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Stocks - Hmmm… Not Sure?…
Not trying to “sell” an e-book telling you how to become a millionaire over night…but taking things step by step, explaining the language you need to talk in the world of money….
Good points, Anca. A lot of people invest in stocks without knowing what they’re doing. Sometimes, a simple education goes a long way.
Flimjo, thanks for stopping by!
Yeah, I think you have to learn the very basics first, have a good understanding of what it means, instead of just going to a brokerage and going with the flow. I mean, there’s a lot of specialized talk here, and if you don’t speak the language, you’re handicapped.
Really good overview what stocks are and the different types. Personally I prefer penny stocks since theyre so cheap.
Thanks Edward! Glad you liked the post. Penny stocks are definitely cheap and a good way to start investing.