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In addition to the
is the one most people think of when they hear the word
It's also the kind of stock most widely bought and sold, or in investor lingo ”traded. It represents basic ownership of part of a company, as was described in the beginning of this lesson. The owner of one share of common stock gets one vote, or one proxy, on company matters. As stated earlier, two shares equals two
When the value of the company goes up as it did in the example of the apple crop freeze, share
When discussing types of investments, you will often hear terms such as financial "instruments" and "vehicles." These terms are not "financial terms" which imply anything significant but simply words which are used interchangeably instead of less professional-sounding terms such as "things" or "stuff."
is the original amount you invested in your financial instrument. A capital gain is an
If you had bought stock in one of those companies that makes Widgets from apples, the value of your company and subsequently its stock would have decreased because of the deep freeze that
Capital gains and losses are one of the two ways stock make and lose money (the other being
When the Widget company makes money by selling all those Widgets, the owners of the stock get a proportional cut of the profits in the form of a dividend. The investor has the choice to take the dividend as a payment after paying taxes on the profit, or reinvesting it to buy more stock. Dividends are
Preferred stock is different from common stock in that preferred stock owners get their dividend payments before the common stock owners. Also, should the company go out of business, preferred stock owners get paid their share of whatever's left before the owners of common stock get paid.
So why isn't everyone buying preferred stock? First, companies don't issue preferred stock until after common stock has been issued, so there's less of it. Second, preferred stock owners don't
Further confusing things, companies can issue any number of different preferred stocks, or
Usually, the different kinds are labeled
A, B, C,
etc., and each class can have a different price or dividend. These classes are highly flexible regarding their similarities and/or differences to each other. This flexibility is necessary to accommodate the circumstances of the issuing company at the time. For that reason, it would be difficult if not
A stock represents a proportional ownership of a company.
Stocks make money when the company makes a profit and
Valuing a company is the sum of its assets and liabilities; this is also known as its net worth.
Stocks are split into two issues ”common stock that appeals more to individual investors; and the various classes of preferred stock that are geared more to the needs of institutional investors.
Various terms have arisen to describe the different behaviors of stock including blue chip, secondary, income, growth, and penny stocks.
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