A Stock is a proportion of a company’s capital issued as shares. These shares are held by a person or another company, giving the holder the right to partial ownership, dividends, and voting rights. By holding a certain number of shares in a company, if the value of the stock increases, you will make a profit by selling the stock. Otherwise, you will either lose money or break even.
You can also think of a stock as the residual claim on the assets of a company, if it is ever liquidated. A company has assets and liabilities. If it pays off all its liabilities, whatever is left over is the property of the shareholders of the company. This is the company’s residual value.
The shares of a stock usually trade on exchanges, where they change hands at an agreed upon prices. This is where most people purchase shares of a stock. A company may issue shares, from time to time. In this case, the shares of stock would be purchased from the company. When a company first issues shares to the public, it is called an “initial public offering”.
Common stock holders have the last claim on the residual value of the company. They are also the last to get paid a dividend from company earnings. However, Holders of common stock have certain rights and privileges, such as voting rights, that other types of issued stock do not have.
Although holders of this type of stock do not have equal rights as the common stockholders, they are assured of consistent dividends. Preferred stock holders have priority over common stock holders on the residual value of the company. They do not usually receive any voting rights in the company’s decision making.
The amount to invest will be determined by the number of shares of stock you wish to buy and the price of the stock. After opening an account to buy stocks from a brokerage company, you will be given the asking price for a particular stock. This represents the minimum price the stock will cost. The bid price is the highest price you can sell the stock.
There are thousands of stocks that are trading right now on various stock markets. Trying to pick which stock to buy may get a little confusing. Here are a few things you can do, to decide which stock or stocks to buy.
1. Seek an experts’ advice, such as a broker.
2. Educate yourself about the stock market, stocks, and market trends by following the market being analyzed on the radio, TV, magazines, newspapers or online.
3. Read the SEC reports of companies. Such as 10Ks and 10Qs
4. Buy the stocks of the local companies that you trust and are doing great.