Stocks & Shares - Common Stock

Type Of Securities - Common Stock

 

Common stock, as the name imply, is a simple stock that has been issued by the corporation and is publicly traded. It is a form of corporate equity ownership and it is a type of security. It is called "common" to distinguish it from preferred stock. Stock represents a claim on the company's assets and earnings. The more stock you are holding, the greater is your ownership stake in the company. 

People that buy them can expect two types of profit. One is capital appreciation, which represent a profit that is made if you sell a stock at a higher price than you had bought. The other form of profit is trough dividends. Dividend represent a part of the companies profit, that management choosed to pay to the shareholders. They do not have the obligation to do that even if the company made a profit that year!

The general threats for to shareholders investment is that a company can go bust or bankrupt, and in that case investor can loose all o his investments. If the company goes bankrupt, the common stockholders will not receive their money until the creditors and preferred shareholders have received their respective share of the leftover assets. This makes common stock riskier than debt or preferred shares. The upside to common shares is that they usually outperform bonds and preferred shares in the long run.

Study of investing and stock market has revealed that in the long term, common stock, by means of capital growth, yields higher returns than almost every other investment. This higher return comes at a cost, because common stock carries the greatest risk. In case the company goes bankrupt and liquidates, the investor holding common stock shares will not receive money until the creditors, bondholders, and preferred shareholders are paid. When people and me in this blog, talks about stocks, they mean on common stocks.