Introduction to Stocks- Basic Information

If you want to invest in stocks you first need a basic understanding of the stock market. If you buy a stock or a share of stock this is defined as the “smallest unit of ownership in a company.” Owners of stocks are part owners of a company. People who own stocks are granted the right to vote on who will be appointed to the board of directors. Individuals also have a say in the matters and issues that take place. Stockholders also have the right to a share of the profits.Limited liability is one of the features that go along with owning stock. If the unfortunate happens and the company you purchased stocks with becomes embroiled in a lawsuit and loses and therefore must pay a judgment, then no one can come after you personally and none of your assets can be seized. However you can lose all of the money you invested if the stocks lose all of their value.

Types of Stocks

There are two different types of stocks- common stocks and preferred stocks. The majority of people have common stocks. Let us take a brief look at both kinds.

Common Stocks

When you hear about stocks in the media and in the public arena the stocks being referred to are most likely common stocks. Common stock has the right to vote and it also is granted the right to share in dividends related to profit. When you hear reports about stocks being up or stocks being down you are listening to information regarding common stocks. One good aspect of common stock is that it is very liquid and therefore buying and selling shares is very popular.

Preferred Stocks

Preferred stocks are not so “preferred” after all. In fact there are fewer rights attached to this type of stock than there is to the common stock in all but one important area, which are dividends. Companies that deal in preferred stocks pay out consistent and handsome dividends to their stockholders. As well preferred stock has first call over dividends as opposed to common stock.