Do you know anything about stocks? I'm sure some of you may already have heard about it onetime or another. You may have heard it from your friends, relatives or you saw some movies discussing about stocks. When we hear the word stock, what we usually think of is something very expensive and only rich people can afford. That may be true several decades ago but things change now. Stocks are already being offered to the public so anyone can purchase it at the right price. You don't need billions to own a stock, you just need a few thousands and then let it grow from there.
What are stocks?
Stocks or shares are the unit of investment in a company. These are actually small portions of ownership within a company. Aside from profits, you may also have voting rights. Huge companies may need additional investment from time to time and they have two options; to secure a loan or to issue stocks. Some owners may want to secure their ownership so they resort to borrowing funds. On the other hand, selling stocks may dilute their ownership but they won't have to worry about any future liabilities or repayments since you will have a share in the losses as well. You may wonder why companies would need an additional investment. The most common reasons are :
- Research and Development
- Launching New Products
- Paying off Debts
What will I get in buying stocks?
Profits. One of the most common reasons why people invest in stocks is for profit. Stock prices change depending on the demand and supply changes in the market. You can gain profit once your bought stocks increases it's stock price. For example, you bought 10,000 shares of company ABC for 2.50 per share. Your total investment is 25,000. ( there will be additional taxes and fees on top of the stock price.) After 3 months, the stock price went up to 3.50 per share. Your current net worth is now 35,000 and the 10,000 difference is your profit, You may have the option to sell it or wait further if the stock price will go higher.
Dividends. Another reason for investing in stocks is the existence of dividends. Dividends are portions of company's earnings that will be distributed to a class of its shareholders. The distribution of dividends are decided by the board of directors. This may come in a form of cash payments, as additional stocks or properties. Some companies issue dividends regularly.
Voting Rights. Some people or companies buy stocks to gain ownership and control over the issuing company. Just around September 2016, Udenna Corporation, the parent and majority stock holder of Phoenix Petroleum Philippines acquired 21% of 2GO Group Inc. The acquisition gave them an advantage in stocking and distribution of products throughout the country since 2GO is the country's largest end-to-end logistics solutions provider.
Types of Stock
There are two two of stocks to choose from depending on your risk tolerance. They are :
- Common Stock - Most of the stocks are being issued this way. Common shares represents your claims and voting rights. Investors often get 1 vote per share-owned to elect the board members who oversee the management of the company. Common stock usually have higher yields compared with preferred stocks. However, it also poses a higher risk that you could even lose everything if the company goes bankrupt. If that happens, the common shareholders will not receive anything unless all of the creditors, bondholders and preferred stock holders are paid first.
- Preferred Stock - Ownership of preferred stocks usually do not entitle you to any voting right however, you will be guaranteed with dividends from the company whatever happens unlike the common stocks which is subjective to the company's performance. The preferred stock maybe categorized as "callable", meaning the company can purchase it anytime (usually for a premium price) for any reason. Preferred stockholders are also given priority over the common stockholders in the event of liquidation.
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