STOCKS BASICS: DIFFERENT TYPES OF STOCKS

There are usually two types of stocks.

  • COMMON STOCK
  • PREFERRED STOCK

COMMON STOCK:

Common stock are usually shares of ownership of corporation. This type of stock allows you to take the portion of the company without taking its possession. Common stock allows the investors to vote on corporate issue. This includes board of directors and usually accepting takeover bids.

In long term, the common stock, through capital growth, has been likely to to produce higher returns than corporate bonds. This higher return comes at a cost, since common stocks need more risk including the power to lose the full amount that is invested, if a company or firm goes out of business. If a company goes bankrupt, the common stockholders will not receive money until the creditors, bondholders and preferred stockholders get their money.

PREFERRED STOCK:

A preferred stock is a group of ownership in a business that has a higher right on its assets and earnings than common stock. Preferred shares generally have a share that must be paid out before payments to common shareholders. The preferred shares usually do not carry voting rights.

Common stock and preferred stock are two main types of stock; but, it’s also possible for companies to convert different classes of stock to fulfill the needs of their investors. The most common reason for creating share classes is for the company in order to keep voting power of company focused on a certain group. So, different classes of shares are given different rights of voting. For example, one class of shares will have held by a select group who are given ten votes per share and a second class will be issued to the more number of investors who are given only one vote per share. When there is more than one class of stock, the classes are usually selected as Class A and Class B, etc. For example, billionaire Warren Buffett’s company, that is Berkshire Hathaway has two classes of stock, usually represented by placing the letter behind the ticker symbol like this: “BRK.A, BRK.B”.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s