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Stocks Are
Stock is an important part of the global economy, allowing companies to raise money for their business operations by selling shares (or ownership shares) to the public. Stocks can be bought or sold through exchanges, such as the New York Stock Exchange (NYSE) or Nasdaq. In limited cases, the shares can be sold privately. Specific regulations set by the Securities Exchange Commission (SEC) govern how companies can manage or distribute their shares. Shares can be common stock, which gives shareholders voting rights on a particular company's decision, or preferred stock, which does not give shareholders voting rights, but often guarantees them fixed dividend payments for good, in perpetuity.
EXAMPLE
If a company has 100 shares outstanding, and you own 1 share, you own 1% of that company. The value of your shares will represent roughly a percentage (1%) of the company's market capitalization, or the value of all outstanding shares.
Imagine you want to have a cupcake shop, but you only have $1,000 to get started. To buy the necessary supplies (for example, flour, icing, cupcake tins), you can collect money from friends and family. Let's pretend that your four friends get $1,000 each, so you have a total of $5,000 and you can run the business. In return for their investment, you may agree to give them 20% each of the business and its profits. This is the kind of way stocks work, except to a much larger extent.Types of Stocks According to Experts
Experts have their own views on the types of stock investments that are usually carried out by the general public. These types are classified based on their respective interests. These types are:Types of Shares Based on Ownership
When viewed based on ownership, these shares can be divided into two types, namely ordinary shares and reserve shares. Of course, the two types will have their own advantages. For the explanation, you can understand it through the explanation below.Common Stock
Common stock is, well, ordinary. When people talk about stocks in general, they are most likely referring to this type. In fact, the majority of the shares issued are in this form. We basically discussed the common stock features in the last section. Common stock represents ownership in the company and a claim (dividend) on a portion of the profits. Investors get one vote per share to elect board members, who oversee major decisions made by management. In the long run, common stocks, through capital growth, generate higher returns than almost any other investment. These higher returns come at a cost because common stocks carry the most risk. If a company goes bankrupt and goes into liquidation, common shareholders will not receive the money until creditors, bondholders, and preferred shareholders are paid. When investment professionals talk about stocks, they almost always mean common stocks. Public companies issue different classes of stocks—more on the subject below—but common stock is the most basic type. In fact, most of the shares issued by the company are common stock. When you own common stock, it gives you the right to elect board members and other corporate matters at the company's annual meeting. Generally, one share equals one vote. An investor who holds five shares of Company ABC, for example, will have only five votes—far fewer than a hedge fund that owns 30% of the company, which could amount to millions of shares. That said, it is possible to own non-voting common stock. If the company's performance is good, common stock is the highest limit in terms of profit from price appreciation. Some common stocks also pay dividends regularly, but the payouts are never guaranteed. One of the drawbacks of common stock is that its shareholders are in last place to pay off if the company goes bankrupt.Preferred Shares
All public companies own common stock, but only a few issue shares called preferred stock. This type of stock offers several advantages over common stock and bonds in a single security. Preferred stock pays guaranteed dividends to its holders, in addition to the opportunity for price appreciation like you would with common stock. If the company's common stock pays dividends, the dividend of preferred stock may be very high. Preferred shareholders are also more likely to receive some sort of compensation if the company becomes insolvent. Another difference is that the issuing company can choose to buy back preferred shares at its option—something investment professionals would say makes the shares "revocable". Additionally, shareholders may have the option to convert their preferred shares into common stock. The biggest drawback of preferred stock, however, is that preferred shareholders do not have voting rights. Preferred shares represent several levels of ownership in a company but usually do not have the same voting rights. (This may vary depending on the company.) With preferred stocks, investors are usually guaranteed dividends in perpetuity. This is in contrast to common stocks, which have variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before common shareholders (but still after debtors). Preferred shares can also be called, meaning that the company has the option to buy shares from shareholders at any time for any reason (usually at a premium). Some people think of preferred stocks as more like debt than equity. A good way to think about these types of stocks is to look at them as being somewhere between bonds and common stocks. (If you don't understand bonds, be sure to check out our bond tutorial as well.)Types of Shares Based on the Method of Transfer
When buying and selling shares, there are several ways to switch shares from one investor to another. So based on the method of transition, the types of shares can be divided into:Top Stocks (bearer share)
It is an equity effect that is wholly owned by an individual or entity that holds a physical share certificate. These shares are usually issued for "unnamed bearers". The owner of the shares is not registered and the company does not keep track if ownership is transferred from the original owner to another buyer. Owners of these shares can transfer the same on the exchange as well as over-the-counter, and can also acquire ownership and membership rights to purchase shares. Shares on the show differ from registered shares in that the shareholders on the show are not named on the stock certificates, and are not usually required to provide proof of legal ownership. The bearer shares are transferred unofficially and by handover, with no changes to be made to the certificate. As a result, they are highly fungible and can be traded easily. In accordance with the German Stock Companies Act, stock companies issue shares on a show unless their charter regulates the issuance of other classes of shares. Bearer shares, on the other hand, are only owned by the person or entity that holds them at any given time. While brokers who sell shares on a show and custodial banks that hold them know who the shares belong to, companies that are owned through shares do not know who owns the shares on their behalf. Correspondence with shareholders on the demonstration and distribution of dividends is carried out through custodial banks or intermediaries. Companies typically prefer listed shares over bearer shares because tracking transactions in their shares can help them avoid hostile takeovers. However, bearer stocks are popular among investors who prefer to avoid the responsibilities attached to listing their shares (such as attending GMS). The issuance of bearer shares also helps companies to avoid the administrative burden of keeping track of every transaction in their shares.Shares in the Name (registered share)
Registered shares or registered shares are certificates of ownership in a public company registered in the name of their holders. Registered stock owners are listed in the stock register of the related company. Registered shares differ from bearer shares in that their ownership is recorded, meaning they are owned by a person or entity listed as their owner in the register of shares. The company knows exactly who owns the registered shares and communicates directly with the registered shareholders. Registered shares are issued in the name of shareholders as record holders. This usually means they have shareholder voting rights and will also receive dividend payments from the company if any. They receive their dividends, as well as investor information and other corporate communications, directly from the company or its transfer agent. It is possible to become a registered holder even if you buy your shares through a broker. Instead of a physical share certificate, those who choose to become registered holders will receive a statement of ownership to show the number of shares they hold.Types of Stocks Based on Trading Performance
Apart from the previous grouping, there are other types of stocks that have been grouped based on their trading performance. These types of stocks are:Blue Chips Stocks
Blue chip stocks are the stocks of well-known and high-quality companies that are leaders in their industry. These companies have stood the test of time and are respected by their customers and shareholders.
Blue chip companies have a solid business model and an impressive track record of returns for investors. These returns often include regular and growing dividend payments, making blue chip stocks among the most popular with conservative investors. But even investors who are more risk-tolerant should consider buying blue chip stocks to better diversify their portfolios and provide stability during volatile stock market conditions.
Blue chip stocks are defined as securities that represent an equity position in a company that has most of the following characteristics:
- An industry leader with a reliable business model.
- Proven track record and strong reputation with consumers and shareholders.
- History provides strong returns in the long run.
- Paying dividends to shareholders and regularly increasing their payouts.
Even if you've never invested in the stock market, you'll recognize the names of many of the top blue chip stocks. These large companies provide products and services that are part of daily life for billions of people around the world
Income Stocks
Income Stocks, also known as dividend stocks, are equity stocks that provide consistent and regular income in the form of dividends to their buyers. The most common features of such stocks are low volatility, regular dividend payments from the last 10 to 15 years, and regular increase in dividend payments and show an increasing pattern of profit growth. While there may be a consistent increase in dividend payouts from such stocks, there is limited scope in terms of future growth of the invested capital. Income stocks are equity financial securities that pay dividends on a regular and predictable basis. They are purchased with the aim of generating a steady stream of dividends. In addition, investors expect dividend flows to increase over time. Income stocks typically come from the real estate, energy, or utilities industries. Although stocks can come from any industry, they are usually found in the above industries.Growth Stock
Growth stocks are companies that increase revenue and revenue at a faster rate than the average business in their industry or the market as a whole. Growth investing, however, involves more than just picking stocks that are rising.
Often, emerging companies have developed innovative products or services that gain existing market share, enter new markets, or even create entirely new industries.
Businesses that can grow faster than average for long periods of time tend to be valued by the market, providing good returns to shareholders in the process. And, the faster they grow, the greater the yield.
Unlike value stocks, high-growth stocks tend to be more expensive than average stocks in terms of profitability ratios such as price-to-earnings, price-to-sales, and price-to-free cash flow ratios.
Despite their premium price tag, the best growth stocks can still provide returns that create good luck for investors as they meet their incredible growth potential.
That said, growth stocks have taken a hit in the market in 2022. High inflation has put pressure on growth stocks as it reduces the future value of expected earnings. In addition, supply chain constraints have affected the ability of some to scale, while other macroeconomic factors are affecting the entire economy. But a decline could give long-term investors a buying opportunity while stock price growth is low.
Speculative Stock
When you think of the word, "speculative" is defined as making assumptions or guesses based on conjectures rather than facts and data. In the same sense, speculative stocks are high-risk, high-reward stocks with uncertain prospects. Investors and traders can determine whether or not a stock is speculative by analyzing how sustainable the company's business model is, which will help them determine whether it will be a risky purchase. Speculative stocks tend to trade at a lower price than other stocks. Professional speculators expect the value of stocks to change in the near future. The volatility of speculative stocks and high returns make them attractive to many investors or short-term traders. Speculative stocks are companies characterized by extreme risk with the possibility of extreme returns as compensation for the risk. These stocks are typically traded on over-the-counter (OTC) markets instead of formal exchanges such as the New York Stock Exchange or NASDAQ Exchange. The price per share is very low, often below $1.00, which allows speculative investors the opportunity to load large amounts of stock. The idea was that Bob could buy thousands of shares at a low price and make money from selling those shares once the stock price went up.Counter Cycling Stock
Cyclical stocks—which have prices that generally correspond to the overall business cycle—succeed when the economy is booming. Their historical performance is often directly correlated with economic cycles of expansion, peaks, recessions, and recovery. During periods of economic prosperity, automakers, airlines, many retailers, and restaurants benefited from free consumer spending. Conversely, when the economy contracts, consumers tighten their belts and reduce their spending. People put off buying a car or going on vacation and they often cut back on spending on clothes and eating out. Countercyclical stocks, on the other hand, perform well in periods of economic uncertainty and tend to underperform during peaks or periods of expansion. As you can imagine, businesses that thrive when consumers limit their spending are not very common, but there are a few examples. Discount retailers, alcohol brands, and other "last resort" businesses such as payday lenders are commonly cited as prime examples of countercyclical businesses.Types of Stock Price Types
After knowing the types of stocks conventionally, this time we will learn about the types of prices on stocks. These types are:Nominal Price
Nominal Price is the amount of direct costs incurred during the manufacture of a product. These costs consist of raw materials and direct labor in the production process but do not include indirect costs (e.g., factory rent or supervisor salaries). This method involves calculating a product's contribution margin, and it indicates a product's ability to cover fixed costs, as well as its profitability. Major costs play an important role in cost accounting and management. These costs are important elements needed to calculate contribution margins, determine prices, forecast sales and profits, and make decisions.Starting Price
The Prime Price is the amount of direct costs incurred during the manufacture of a product. These costs consist of raw materials and direct labor in the production process but do not include indirect costs (e.g., factory rent or supervisor salaries). This method involves calculating a product's contribution margin, and it indicates a product's ability to cover fixed costs, as well as its profitability. The Prime Price plays an important role in cost accounting and management. These costs are important elements needed to calculate contribution margins, determine prices, forecast sales and profits, and make decisions.Opening Price
The opening price is the price at which a stock is first traded at the opening of the exchange on a trading day. For equities, normal market hours are from 09:15 to 15:30. However, the exchange starts collecting orders from people at 9:00 a.m. to 9:08 a.m. referred to as the pre-market window, during this time, they collect orders from the public and during the next 7 minutes before the market opens, they match these orders to be decided at what price the stock will open for the day at 9:15 a.m.Market Price
The market price of a stock is the price at which it sells on the open market at a given point in time. Market prices will typically fluctuate throughout the trading day as investors buy and sell stocks. The market price will go up if more people want to buy it and go down as people start selling more shares. Be aware, however, that market price is not necessarily an accurate indicator of a stock's value.Closing Price
means the average closing price of one share of Common Stock over twenty consecutive trading days included and immediately preceding the last day of the performance period. Closing Stock Price means, with respect to common stock on a given date, (i) if the common stock is listed on a national stock exchange, the last selling price per share of common stock on a national stock exchange on that date, or, if no sale is reported on that date, on the last previous date on which such sale was reported and, (ii) if the stock of the Common Stock is not listed but quoted in the NASDAQ National Market System, the last selling price per share of common stock reported on the NASDAQ National Market System on that date, or, if no such sale was reported on that date, on the last preceding date on which the sale was made so reported.
