A share of stock is the smallest unit of ownership in a company. If you own a share of a companys 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 cant come after your personal assets. Thats not necessarily true in private-held companies.
There are two types of stock:
- Common stock
- Preferred stock
Common StockCommon 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 StockDespite 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.
LiquidityAnother 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 MoreThere are many more articles to help you get started in stocks. Here are some youll find helpful:
Stock SectorsInvestors 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 UsMarket 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 DividendsDividends are a way companies distribute a portion of their profits to shareholders.
What You Should Know about Different Share TypesNot 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.