What is a stock
A stock is a credential that demonstrates the ownership of a small part of a corporation. By buying a stock, the investor is buying a small proportion of all the company’s assets. Also, individuals that own shares in a company are called stakeholders or shareholders.
- Whenever the company generates profit, the shareholders make profits as well.
- Owning a significant number of stocks in a company, provides the opportunity to make decisions that influence that specific company
- Stocks are a long-term investment
- Stocks are unpredictable as they are based on the performance of a company which is beyond the investor’s control. For example, a decision made in a company may have a negative outcome to the public and automatically this will reflect on the profit or loss of the company and simultaneously reflecting on the value of the investor’s stocks.
- Stocks cost investors money in the appearance of brokerage commission; thus when investing in stocks, it is best to ‘buy and hold’ for an extended period.
- Companies may go out of business thus investors should choose where they invest as their decision may reduce the risk of failing.
These stocks represent ownership in a company, and usually, these are the stocks that most people refer to when investing.
Common stocks offer higher returns than most of any other type of investments. However it is essential to understand the risk, that if the specific company that an investor buys stocks in, goes bankrupt, then the shareholder will not generate any profits.
These types of stocks signify a certain level in a company where stakeholders have assured a fixed dividend forever. Common stocks are different as they do not assure any dividends.
Additionally, in a scenario where the company is upfront with liquidation, the shareholders that own preferred stocks will get paid off before the common stockholders. These stocks offer the option to the company to purchase back the shares at any time.