Stocks basics pdf

To browse Academia. Skip to main content. Log In Sign Up. How to Invest in Stocks for Beginners. Anjelyn Hernando. Have you ever tried to become a shareholder of a company, well-known or not?

Stock Market Basics: What Beginner Investors Should Know

To browse Academia. Skip to main content. Log In Sign Up. How to Invest in Stocks for Beginners. Anjelyn Hernando. Have you ever tried to become a shareholder of a company, well-known or not? Did you tried to browse what it would be like when you invested or purchased stocks in a stock market? Do you even know what the basics of stocks are? History has proven that investing in stocks has been one of the most effective and efficient way for individuals to build wealth and raise their passive income.

Investing in stock is complex. Hence, stocks are still misunderstood by some people. There are factors that must be taken into consideration before investing in stocks such as the company where to invest and what type of stocks to buy. Thus, stocks usually have two types: the common stock and the preferred stock. When people talk about stocks, they are generally referring to the common stock. In fact, great majority of sock is issued in this form.

It represents a claim on profits dividends and confers voting rights. Also, they are given a guaranteed fixed dividend unlike with the common stocks which give variable dividends that varies along the profits or earnings of the corporation for a period. Investing is risky. You need to enrich your investment strategy and be tactical in order to maintain your investment and attain your desired goals. Those who own stock are commonly called stockholders or shareholders.

As a shareholder, an investor theoretically owns a percentage of everything the company owns or owes. It is issued by companies to raise capital in order to grow the business or undertake new projects. The stock also capital stock of a corporation is constituted of the equity stock of its owners. A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. The stock of a corporation is partitioned into shares, the total of which are stated at the time of business formation.

Additional shares may be authorized by the existing shareholders and issued by the company. In some jurisdictions, each share of stock has a certain declared par value, which is a nominal accounting value used to represent the equity on the balance sheet of the corporation.

In other jurisdictions, however, shares of stock may be issued without associated par value. Classes of Shares A business may declare different types or classes of shares, each having distinctive ownership rules, privileges, or share values.

Ownership of shares may be documented by issuance of a stock certificate. Typically, stock takes the form of shares of either common stock or preferred stock. The distinction between the two will be discussed as follows: 1. These are the stocks to which everyone is usually referring when they use the term in the context of portfolio management or the world of investing. In modern times, common stock is virtually always issued as "fully paid and non-assessable", which means once you have acquired it, you can't be forced to come up with any more money, though that wasn't always the case.

Preferred Stock — generally does not have voting rights, but has a higher claim on assets and earnings than the common shares and is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders. For example, owners of preferred stock receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Aside from those two classes of shares stated above that are of common nature and both frequently used in investing in the stock market as the major classes of shares of stock, there are still some categories or classifications of shares of stock that one should be knowledgeable in order to have a background and idea of what investing really means.

Based on Ownership Rights This is the most basic parameter for classifying stocks. In this case, the issuing company decides whether it will issue common, preferred or hybrid stocks. There are two different types of stock that investors can own. They have different ownership rights and different privileges. Common Stock Common stock is as it sounds, common. When people talk about stocks they are usually referring to common stock, and the great majority of stock is issued is in this form.

Investors can also vote to elect the board members who oversee the major decisions made by management. Historically, common stock has yielded higher returns than almost all other common investment classes.

In addition to the highest returns, common stock probably also carries the highest risk. If a company goes bankrupt, the common shareholders will not receive money until the creditors, bondholders and preferred shareholders are paid. This risk can be greatly reduced by owning many different well established companies diversification that have solid financial statements and a history of strong earnings.

With preferred shares, investors are usually guaranteed a fixed dividend. Recall that this is different than common stock, which has variable dividend payments that fluctuate with company profits. One advantage of preferred stock is that in the event of bankruptcy, preferred shareholders are paid off before the common shareholder but still after debt holders.

I like to think of preferred stock as being somewhere in between bonds and common stock. It shares similarities with both. Based on Company Specifics Each company has a unique plan for growth and dividend distributions which is reflected in these stock classifications. Blue-Chip Stocks Blue-chip stocks are stocks of the biggest companies in the country.

These are usually high quality companies with years of strong profits and steady dividend payments. They are also some of the safest stocks to invest in.

This usually results in steady stock prices, but less upside for investors. As a result, historical returns for very large companies have trailed the returns of smaller companies. They are stable companies that pay large dividends. When you combine the dividend payments with the appreciation in stock price, these stocks often provide retirees with more money than they can earn by investing in bonds or other fixed income investments. Of course, this comes with higher risk that the stock price will fall in a market downturn.

Sometimes this is a result of distress or financial problems. Other times, it may be due to investor behavior and cyclical trends. Growth Stocks Growth stocks are stocks of companies with profits that are increasing quickly. These companies often reinvest the profits and pay little to no dividends to stock owners.

In doing so, they hope that the growth in stock price is enough to keep stockholders on board. Growth companies are often technology centered, and usually either sell a product or focus on research and design. Most of these companies experience rapid growth. Growth stocks can rise in value quickly, but they often fall even quicker. Based on size Market capitalization market cap is simply a way of referring to the size of a company in a manner that allows you to compare companies in different industries.

You compute market cap by multiplying the number of outstanding shares by the current stock price. Investors often talk about investing is small, mid, or large cap mutual funds. This means that the mutual fund only invests in companies of a certain size.

There is a strongly correlation here between risk and return. Without capitalism and well-functioning capital markets, most of the modern comforts you take for granted wouldn't exist or be available to you. Thus, they want to gain earnings without further efforts such as managing the business, being employed in a manufacturing company, working in a firm with lots of tasks to do and so on.

In line with this, they are attracted to the existence of the stock market in the Philippines. A stock market, equity market or share market is the aggregation of buyers and sellers a loose network of economic transactions, not a physical facility or discrete entity of stocks also called shares , which represent ownership claims on businesses; these may include securities listed on a public stock exchange as well as those only traded privately.

Some exchanges are physical locations where transactions are carried out on a trading floor, but increasingly the stock exchanges are virtual, composed of networks of computers where trades are made and recorded electronically. These are secondary markets, where existing owners of shares can transact with potential buyers. So, when you buy a share of stock in a stock market, you are definitely not buying it from the company, but from some other existing shareholders.

In the same manner, when you sell your shares, you do not sell them directly to the company, but to some other investors interested with your shares. Such examples include shares of private companies which are sold to investors through equity crowdfunding platforms.

Stock exchanges list shares of common equity as well as other security types, e. Nowadays, stock markets have become the driving economic force in a country.

For example, it was found out that France had a system where couriers managed agricultural debts throughout the country on behalf of banks. This can be seen as the first major example of brokerage because the men effectively traded debts. Soon after, bankers in the nearby Italian cities of Pisa, Verona, Genoa and Florence also began trading government securities.

Coffee Shops: First Real Stock Markets Before investors yelled across trade floors and threw order forms into the air, they conducted business in coffee shops. Early stocks were handwritten on sheets of paper and investors traded these stocks with other investors in coffee shops. As the volume of shares that has been traded increased, the need for an organized marketplace to exchange these shares became necessary.

As a result, stock traders decided to meet at a London coffeehouse, which they used as a marketplace. Eventually, they took over the coffeehouse and, in , changed its name to the "stock exchange. The idea made its way to the American colonies with an exchange started in Philadelphia in In other words, coffee shops were the first real stock markets due to the fact that investors would visit these markets to buy and sell stocks. In other words, stocks are left unknown until The Philadelphia Stock Exchange holds that title.

But, NYSE became the most powerful stock exchange in the country due to the lack of any type of domestic competition and its positioning at the center of U.

The stock may or may not pay dividends, which usually come from profits. If profits fall, dividend payments may be cut or eliminated. Many companies also issue “. The following are general descriptions of some of the common order types and trading instructions that investors may use to buy and sell stocks. Please note that​.

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