Lets start with something very basic for the beginner. That includes me really as I am really trying to know more of everything I could.
I think investing is an essential knowledge nowadays. We do not have to deal as sexy as those at Wall Street or watch CNBC like a sitcom but knowing more about how to handle your hard earned cash always help. You won’t want it to be devoured by pathetic FD rate and high CPI/inflation (Consumer Price Index) rate every year.
Lets cut the crap and start with some real simple terms.
A stock is a means by which the average person can purchase a company by dividing its purchase price into shares small enough to be accessibly priced for everyone.
A When the company makes a profit, the whole profit, or some of it, is divided up among everyone who has a share. These payments are called dividends stock is a proportional ownership interest in a company. Or, in simplest terms, a stock is a portion of the value of a company. When you buy stock in a company, you are actually purchasing a piece of that company.
But not all companies pay dividend. They may decide to put the earning back to expanding their business.
So how do you make money? Say today you buy the stock for 2 dollar a unit and end of this year it is about 4 dollar in market price, you can sell and make a profit.
It is a game of supply and demand and nothing fancy. It is very dynamic in nature and controlled by many factors and the effects are almost immediate.
What are the kinds of stock?
- Blue Chip Stock.
A share of one of the most established and financially secure companies in the country. Example will be Tenaga Nasional Berhad. It has a large asset value and backed by the government if anything happens. It also means very slow growth.
- Secondary Stock.
A share of a company with substantial backing that is not quite considered blue chip.
- Income Stock.
A stock that is usually characterized by its issuing company’s focus on providing higher dividends.
- Growth Stock.
The stock of a company that is still small but is believed by its shareholders to have great growth potential.
- Penny Stock.
A highly speculative stock in a company with little or no real value other than its uncertain growth potential. Many IT companies during the IT bubble period are penny stocks. Many have no office and just a domain or a concept that might have growth. It has virtually no asset but the potential is subjected to speculation.
The Two Main Issues of Stock
In addition to the unofficial kinds of stocks just discussed, the market has two issues of stock to accommodate different types of investors: common stock and preferred stock. As a very general rule, the benefits of common stock tend to be more geared for individual investors while those of preferred stock tend to be more geared to the needs of institutional investors such as pension funds, mutual funds, and banks.
Common Stock
Aptly named, common stock is the one most people think of when they hear the word stock. It’s also the kind of stock most widely bought and sold, or in investor lingo—traded.
Preferred Stock
Preferred stock is different from common stock in that preferred stock owners get their dividend payments before the common stock owners. Also, should the company go out of business, preferred stock owners get paid their share of whatever’s left before the owners of common stock get paid.
Then why people do not buy preferred stock? It is because companies do not issue preferred stock before they issue common stock.
