What is a ‘Stock’
Stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
There are two main types of stock: common and preferred. Common stock usually entitles the owner to vote at shareholders’ meetings and to receive dividends. Preferred stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated.
Also known as “shares” or “equity.”
BREAKING DOWN ‘Stock’
A holder of stock (a shareholder) has a claim to a part of the corporation’s assets and earnings. In other words, a shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company’s assets.
Stocks are the foundation of nearly every portfolio. Historically, they have outperformed most other investments over the long run.
How Stocks are Regarded by Investors
The share price of any stock can be influenced by activity and announcements that involve the company, as well as changes in an industry. In the course of selecting stocks to purchase, an investor might see to a variety of choices to put their money towards. For example, blue-chip stocks represent shares in well-established companies that are typically market leaders. Potential investors in blue-chip stocks have the benefit of long performance histories that can be assessed before committing funds towards such a purchase. That extensive history, however, does not guarantee forward growth or positive performance of the stock.
Conversely, investors might look to newer or more modestly performing stocks to invest in, typically seeing the potential for greater returns on smaller investments. This can include penny stocks, which often are not trade on the major exchanges because they do not meet one or more minimum requirements for listing. Large companies as well as smaller organizations may trade as penny stocks for a variety of reasons, including market capitalization. High volatility is often associated with penny stocks, which offers the potential for quick gains in some examples, but with also a heightened potential for losses on the shareholders part. Penny stocks, because of their relatively low share prices, could be subject to drastic fluctuations based on recent developments.