What is Common Stock - A beginners Guide
A security that represents ownership in a corporation. Holders of Common Stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company's assets only after bondholders; preferred shareholders and other debt holders have been paid in full.
What’s the difference between Common Stock and Preferred Stock?
With Preferred Shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed. Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders).
What are the main advantages common stocks?
(1) Income - the right to a proportional share of the company's income, either paid out as a dividend or retained and reinvested in the business.
(2) Control - the right to vote on company affairs, in particular the election of directors, the selection of external auditors, and proposed amendments to the company's charter or by-laws.
(3) Information - the right to “inspect the company's books,” usually satisfied by providing stockholders with summary financial statements and commentary in the company's annual and quarterly reports.
(4) Freedom to sell - the ability to sell ownership in the company to anyone else at any time without the need for approval.
What are the main disadvantages of common stocks?
1) Since Common Stock represents ownership of a business, stockholders are the last to get paid, like all other owners.
2) While shareholders are company owners, they do not enjoy all of the rights and privileges that the owners of privately held companies do.
3) Investors in a company may not know all that there is to know about the company.
4) Stock prices tend to be volatile. Prices can be erratic, rising and declining quickly.
Pin Brokerage Resources
Jeremy J. Siegel's Stocks For Long Run is essential reading for every investor and adviser who wants to fully understand the market-including its behavior, past trends, and future influences-in order to develop a prosperous long-term portfolio that is both safe and secure.
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