Stocks: your share of ownership in a company
Stock generally refers to shares of Common Stock or an “equity share” of a corporation. Each share of Common Stock represents a share of ownership in a company.
The price of a stock generally represents investor expectations about the future profitability potential or future value of the company, and may also be influenced by general economic and market conditions. When buying stock, an investor is typically hoping that the perceived value of the company will rise, producing a capital gain when the shares are resold at a higher price.
A dividend is a payment distributed to shareholders from time to time and in amounts voted on by a company’s (or a mutual fund’s) board of directors. The dividend may be in cash, in more shares of the company’s stock, or in shares of another company it owns. Not all corporations pay dividends.
There are many different types of stocks including Large Capitalization Stocks, Small Capitalization Stocks, International Stocks, Blue Chip Stocks, and Growth Stocks.
Stocks are not FDIC-insured and involve risk, including possible loss of the amount invested.
Large Capitalization Stocks
These stocks include those of relatively large and established U.S. companies. These stocks are often found in such well-known indices as the S&P 500 or the Dow Jones Industrial Average. Like all stocks, Large-Cap Stocks fluctuate in value daily depending on what investors think of the economy and of the companies’ business prospects.
Small Capitalization Stocks
These stocks include those stocks of relatively small U.S. companies. These stocks are often found in such indices as the NASDAQ Composite or the Russell 2000 (though NASDAQ has many large-cap stocks, as well). Like all stocks, Small-Cap Stocks fluctuate in value daily depending on what investors think of the economy and of the companies’ business prospects.
Small-Cap Stocks tend to involve more risk than Large-Cap Stocks.
These are stocks of companies based outside the U.S. Like all stocks, International Stocks fluctuate in value daily depending on what investors think of various global economies and of the companies’ business prospects.
The stocks of most foreign companies that are traded in the U.S. markets are traded as American Depository Receipts (ADRS). Each ADR represents one or more shares of foreign stock or a fraction of the share. By owning an ADR, you have the right to obtain the foreign stock it represents. The price of an ADR corresponds to the price of the foreign stock in its home market, adjusted to the ratio of the ADRS to foreign company shares.
Blue Chip Stocks
These are common stocks of well known companies with histories of profit growth and dividend payment, as well as quality management, products, and services. Blue chip stocks are usually high-priced and low yielding. The term “blue-chip” comes from the game of poker in which the blue chip holds the highest value.
These are stocks of a company where the earnings and/or revenue are growing faster than its industry or overall market. That is, the stock is maintaining a faster-than-average growth. Such companies will most likely provide long-term growth of capital. Growth stocks may be more volatile than the market as a whole. Therefore, there may be times when growth stocks are doing well and times when they are not doing well. It is also important to note that a growth stock is not a growth stock forever.