The Different Types of Stock
Many first time investors are a bit confused about the fact that there are different types of stock. Before you get into stock trading or learn much about it, you may think that a stock is a stock is a stock. Well, they are all similar, but there are different types of stock with very important differences. You must know what types of stock are available if you are going to play the stock market.
Common Stock
Common Stock is the most common type of stock, as you may have guessed from the name. Common stock is a term you will hear often. Anyone can purchase common stock. Common stock in essence gives you part ownership in the company that you are investing in. Generally, as the business grows and earns more money, the value of your stock rises and if the company starts doing poorly or goes bankrupt, the value of your stock falls. Common stock holders have no real say over the day to day operations of a business, however they do have the power to elect the board of directors.
Classes of Stock
Companies can customize the types of stock they want to sell, and so offering different classes of stock gives a company more control over what benefits a certain class of stock transfers to the owner of the stock. Common classes of stock are called class A and class B. Class A stock generally gives the stock owner more votes per share of stock than the owners of class B stock. The ability for companies to divide their stock up into different classes has existed since 1987.
Preferred Stock
Preferred stock is sort of like a mix between a stock and a bond. There is less risk involved because the owner’s of this type of stock are able to 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. This means if something goes bad, like a bankruptcy, the preferred stock holders get payed first. Preferred stock is also often callable, which means the company issuing it has the right to buy it back at anytime.