1. Money

Introduction to Stocks

Basic Stock Information to Get You Started

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The first step for you to understand the stock market is to understand stocks.

A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

You have the right to vote on members of the board of directors and other important matters before the company. If the company distributes profits to shareholders, you will likely receive a proportionate share.

One of the unique features of stock ownership is the notion of limited liability. If the company loses a lawsuit and must pay a huge judgment, the worse that can happen is your stock becomes worthless. The creditors can’t come after your personal assets. That’s not necessarily true in private-held companies.

There are two types of stock:

  • Common stock
  • Preferred stock
Most of the stock held by individuals is common stock.

Common Stock

Common stock represents the majority of stock held by the public. It has voting rights, along with the right to share in dividends.

When you hear or read about “stocks” being up or down, it always refers to common stock.

Preferred Stock

Despite its name, preferred stock has fewer rights than common stock, except in one important area – dividends. Companies that issue preferred stocks usually pay consistent dividends and preferred stock has first call on dividends over common stock.

Investors buy preferred stock for its current income from dividends, so look for companies that make big profits to use preferred stock to return some of those profits via dividends.

Liquidity

Another benefit of common stocks is that they are highly liquid for the most part. Small and/or obscure companies may not trade frequently, but most of the larger companies trade daily creating an opportunity to buy or sell shares.

Thanks to the stock markets, you can buy or sell shares of most publicly traded companies almost any day the markets are open.

Learn More

There are many more articles to help you get started in stocks. Here are some you’ll find helpful:
  • Stock Sectors

    Investors break the market down into sectors by company business. These sectors make is possible to compare how a stock is doing relative to its peers.

  • What Market Indexes Tell Us

    Market indexes like the Dow, S&P 500, and Nasdaq Composite, can be useful tools if you understand what they do and do not represent.

  • Making Money with Dividends

    Dividends are a way companies distribute a portion of their profits to shareholders.

  • What You Should Know about Different Share Types

    Not all shares of stock are created equally. Authorized, restricted, float, outstanding and treasury shares all have different attributes. Investors need to know these terms to make informed decisions.

Conclusion

Stocks represent ownership in a publicly traded company and carry certain rights and privileges, including voting for board of directors and sharing of profits.

Articles in This Series

Introduction to Stocks

Understanding Stock Share Terms

Understanding Stock Diversification

Understanding Cyclical and Non-Cyclical Stocks

Stock Sectors - How to Classify Stocks

Making Money with Dividends

Understanding Stock Splits

What Market Indexes Tell Us

Major Stock Exchanges

Look into the Future with Stock Market Indexes

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