Stocks are most popular investment opportunity. But everyone has heard about stocks. Because, many people don’t understand basic concepts of stocks. Moreover, learn how to trade stocks. Therefore if you are invested to invest in stocks. You must understand what shares of stock actually do. Hence, first step for you to understand stock market.
What are stocks
Stock is share in ownership of company. Therefore share of stock is smallest unit of ownership in company. If you own share of stock of company. And you actually own part of company. Moreover, you have right to vote member of board of directors. And also other important matters before company. See how to invest in stock market with little money.
However, company will share profits to shareholders. And you will receive balance share from company. Probably, you can claim on company profit when they are paid in dividends. For more details check how stocks market work.
Types of stocks
However, there are two types of stocks. In addition, like common stock and preferred stock. Hence, to learn more view difference of common and preferred shares.
Common stock is majority of stock issued in this form. Therefore it has voting rights along with dividend right. But common stocks is sounds common. Usually people refer to common stock only. Probably, you can also vote to elect board member. Because, major decisions made by management. See list of common stocks.
However, common stock has yield higher returns in common investment classes. In addition, to highest returns common stock also carries high risk. Moreover, if company destroys shareholders will not receive money. Because, until chosen shareholders are paid. Check common stock balance sheet.
Preferred stocks have few rights than common stocks. But except in one important area like dividend. Moreover, companies that issue preferred stocks usually pay regular dividend. And preferred stock has first call on dividend more than common stock. Therefore, you buy preferred stock for current income from dividend. So look for companies that make big profit.
However, preferred stock does not come with same voting rights. Probably, you will receive guarantee fixed dividend Therefore preferred stock is different than common stock. And it has uneven dividend payment that change with company profits. See preferred dividend stock.
Moreover, like common stock preferred stock does not enjoy when market is down. In addition, preferred stock has one benefit. Because, even company fail preferred shareholders are paid before common shareholder. Hence, see how to classify stocks. Check preferred stock list.
Different types of Common stock
Common stocks are category on basis of their different investment. Therefore all these common stock has an ownership in same company. But some stocks are stable while others are volatile. Probably, dividend offer to their holder but others don’t. Similarly, these stocks are divided into seven stocks. Like Blue Chip stocks, Income stock and cyclical stocks. In addition, like Defensive, Growth, Speculative and penny stocks.
Blue Chip Stocks
Blue Chip Stocks are best common stock. Moreover, companies have long history of growth. Because, this company is expected to pay regular dividends. And have fixed growth in earnings per share. But there is no specific definition of blue chip stocks. Therefore blue chip stock stand for company that been paying long dividends to shareholders. See best blue chip stock in India.
Income stocks are used to make income without selling share. Therefore in company income stock pay high dividend compare to other stock. But dividend yield show price of share to stock price. Moreover, income stocks have high dividend yields. However, company will earn net income after tax. Furthermore, dividend payment decision is made by board of directors.
However, company will give best interest to shareholders. Moreover, income stock contains those stocks. And that have been paying more than average percentage of net income. Therefore company payout ratio is part of Net Income after Tax paid as dividend. See list of public utilities are best example of income stock. Like telephone, electric and natural gas companies.
Cyclical stock price move with economy. Because, cyclical stocks often reach high and low point before peak of economy. Furthermore, if economy is in down these stocks reject in sales and earnings. Moreover, in period of growth these stocks grow in sales and earnings. To better understand see examples of Cyclical stocks.
However, in case of recession stock performance is poor. Therefore example of cyclical stock contain Steel companies, industrial chemical firms and automobile. Generally, cyclical stock market risk is higher than average. Hence, you can check list of current growth and value stocks. See best cyclical stock list. And also check top cyclical companies in India.
Defensive stocks of companies hold their price level when economy turns down. Generally, these stocks resist downturn in economy. Because, these companies make needed goods. Like food, beverages and pharmaceutical products. Therefore defensive stocks price do well when economy is down. See defensive stock list.
However, defensive stocks move slowly than other stocks. Therefore defensive stock has important feature. Because, it continuously sell its product even market is up or down. In addition, these industries are food, tobacco & alcohol companies. Moreover, people use these product even market condition is good or bad. Hence, defensive stock market risk is lower than average.
Therefore stocks are protected even economy up and down. So defensive stock are opposite of cyclical stock. And to maintain more value during economy down. In addition, you can hold defensive stock to reduce unstable of your portfolio. Hence, check defensive stock examples. Check defensive companies in India.
Growth stocks do not offer any dividend to their shareholders. Similarly, growth stocks do not have perfect definition. Moreover, these companies have high earnings ratio. And growth companies do not pay dividend. But growth companies keep their earnings and reinvest them to expand their business. For better understand view growth stock examples.
In addition, before invest in growth company Look Company’s history. See list of growth stocks. Therefore you can choose stocks based on potential for capital gains. And not for dividend income. So they can be risky. Moreover, technology companies are best example for growth stock.
However, growth stocks carry lot of risk. Because, shareholders rely only company success. And to generate return on their investment. If company growth is not good then shareholders lose money. But share price drop down. See now best growth stock to buy. Check fastest growing stocks.
Speculative stocks are likely to pay to its holders. And they will pay great amount of money in shorter period. Therefore return and risk of stock has direct relationship. But in case of speculative stock risk level is very high. In other words, speculative stocks offer both higher return and higher risk. See list of speculative stocks.
Similarly, you will attract to speculative stocks. Due to their higher profit in shorter period of time. Probably, on basis of risk factor analyst suggest growth stock instead of speculative stock. But they also carry risk of loss. If company not perform or poor. Moreover, speculative stocks have chance for increase in stock price.
However, these companies do not have earnings records. So they have possibility of gain or losses than other stocks. Hence, these stocks will give you high capital gains or high capital losses. Moreover, stocks of new companies are considered as speculative stock. In addition, like technology and electrical firms are examples of this stock.
Penny stocks are low price stock. Probably, penny stocks are normally growing company with limited resources and cash. Moreover, penny stocks are high risk investment with trading volume low. And everyone gives less attention for penny stock. See top 10 penny stocks in India.
However, if stock goes up to 50 percent you make 100 percent returns. If company business goes down you will lose entire investment. Moreover, it is very difficult to find out penny stocks. See list of top penny stocks. Hence, choose best penny stocks. For more details check how to invest in penny stocks.
Finally, preferred share can be converted to fixed number of common shares. But common shares do have this benefit. Therefore check common stock vs preferred stocks. Hence, to know more details see common stock advantages.