Different Types of Stock

Santri Alat - Different Types of Stock -The different types of stock are what confuse most first time investors. That confusion causes people to turn away from the stock market altogether, or to make unwise investments. If you are going to play the stock market, you must know what types of stock are available and what it all means!

Common Stock is a term that you will hear quite often. Anyone can purchase common stock, regardless of age, income, age, or financial standing. Common stock is essentially part ownership in the business you are investing in. As the company grows and earns money, the value of your stock rises. On the other hand, if the company does poorly or goes bankrupt, the value of your stock falls. Common stock holders do not participate in the day to day operations of a business, but they do have the power to elect the board of directors. 

Along with common stock, there are also different classes of stock. The different classes of stock in one company are often called Class A and Class B. The first class, class A, essentially gives the stock owner more votes per share of stock than the owners of class B stock. The ability to create different classes of stock in a corporation has existed since 1987. Many investors avoid stock that has more than one class, and stocks that have more than one class are not called common stock. 

The most upscale type of stock is of course Preferred Stock. Preferred stock isn’t exactly a stock. It is a mix of a stock and a bond. The owner’s of preferred stock can lay claim to the assets of the company in the case of bankruptcy, and preferred stock holders get the proceeds of the profits from a company before the common stock owners. If you think that you may prefer this preferred stock, be aware that the company typically has the right to buy the stock back from the stock owner and stop paying dividends. 

6 Different Types of Stocks You Should Know

The main types of stock are common and preferred. Stocks are also categorized by company size, industry, geographic location and style. Here's what you should know about the different types of stock.

A stock is an investment into a public company. When a company sells shares of stock to the public, those shares are typically issued as one of two main types of stocks: common stock or preferred stock. Here’s a breakdown.

Types of stock

1. Common stock

If you’re new to investing in stock and looking to buy a few shares, you likely want to invest in common stock, which is exactly what the name suggests: the most common type of stock.

When you own common stock, you own a share in the company’s profits as well as the right to vote. Common stock owners may also earn dividends a payment made to stock owners on a regular basis but those dividends are typically variable and not guaranteed.

2. Preferred stock

The other main type of stock, preferred stock, is frequently compared to bonds. It typically pays investors a fixed dividend. Preferred shareholders also get preferential treatment: Dividends are paid to preferred shareholders before common shareholders, including in the case of bankruptcy or liquidation.

Preferred stock prices are less volatile than common stock prices, which means shares are less prone to losing value, but they’re also less prone to gaining value. In general, preferred stock is best for investors who prioritize income over long-term growth.

Within those broad categories of common and preferred, different types of stocks are further divided in other ways. Here are some of the most common:

3. Large-cap stocks, mid-cap stocks and small-cap stocks

You might’ve heard the words large-cap or mid-cap before; they refer to market capitalization, or the value of a company. 

Companies are generally divided into three buckets by size: Large cap (market value of $10 billion or more), mid-cap (market value between $2 billion and $10 billion) and small-cap (market value between $300 million and $2 billion).

4. Sector stocks

Companies can also be classified into sectors based on what their core business is. The Global Industry Classification Standard (GICS) divides the market into 11 sectors:

• Energy
• Materials
• Industrials
• Consumer discretionary
• Consumer staples
• Health care
• Financials
• Information technology
• Communication
• Utilities
• Real estate

Stocks in the same sector — for example, the technology or energy sectors — may move together in response to market or economic events. That’s why it’s a good rule of thumb to diversify by investing in stocks across sectors. (Just ask someone who held a portfolio of tech stocks during the dot-com crash.)

5. Domestic and international stocks

Stocks are frequently grouped by geographic location. 

You can diversify your investment portfolio by investing not only in companies that do business in the U.S., but also in companies based internationally and in emerging markets, which are areas that are poised for expansion. (Here’s more on how to invest in international stocks.)

6. Growth and value stocks

You might hear stocks described as growth or value. Growth stocks are from companies that are either growing quickly or poised to grow quickly. Investors are typically willing to pay more for these stocks, because they’re expecting bigger returns.

Value stocks are essentially on sale: These are stocks investors have deemed to be underpriced and undervalued. The assumption is these stocks will increase in price, because they’re either currently flying under the radar or suffering from a short-term event.