What is the market of stocks.

What is the market of stocks.

The assumption many make is that the general knowledge in what stocks are, their benefits and how one can trade in them, is adequate. Hence this might come as a surprise but there is so much more to know about stocks. A vast knowledge in the market of stocks will help you be better prepared when you do decide to engage in their trade, but otherwise it is also pertinent to have knowledge of it none-the-less.

What-is-the-market-of-stock

What-is-the-market-of-stock

What is the market of stocks?
A stock is the unit ownership of a business. It means that one has become entitled to the earnings and assets of a company to the extent of their shareholding. Shares are usually either accompanied by voting rights or dividend payments.

What is the difference between a stock and a bond?
A stock is the ownership of a company translated into shares of the company. However a bond a loan given by an investor to accompany at an agreed interest rate. At the end of a specified period, the company will be required to return the loaned funds to the investment plus the accumulated interest.

What is a stock broker?
A stock broker is a professional who engages in the buying and selling of stock at a stock market. He may either carry out the entire transaction on behalf of a client, or he may facilitate the meeting between a buyer and a seller for a stock sale and purchase to occur.

What does it mean when says a ticker symbol?
The abbreviation of stock depicted by a collection of letters are used as an identity for the stock. These are what are referred to as ticker symbols. An example of a ticker symbol for let’s say; Coca-Cola is KO

I’ve heard stocks a held in a street name. What does that even mean?
Most stocks are held in street names, and this in other words means that the stock is held in a brokerage account. When this happens, the company that owns the stock is not aware of who the investor is, and this is because the name of the stock broker won’t show up on the shareholder roster.

What is a stock split?
Stock certificates may be distributed prorata. This is done with the intention of making the stocks cheaper and more affordable. The stocks will then be of a lower price i.e. they will be worth less. Commonly, stocks are usually split 2-1.

A bear market; what is that?
A bear market is a stock market where prices crash by 20% or more. It is the opposite of a bear market. Its terminology arises from the manner in which a bear claws it prey down.

A bull market; what is that?
A bull market, deriving its name from the manner in which a bull would throw off its prey by plunging them further with the use of its horns, is a stock market in which the rise in price is by 20% or more.

Wall Street

Wall Street

The New York Stock Exchange is housed on a street called the Wall Street. That is one definition. It is a street in the lower parts of Manhattan. The largest brokerages as well as investment banks in the entire United States have had their historic headquarters along Wall Street. The second definition of Wall Street however is the collective term used to refer to the investment community. It is the summation of the largest stock exchanges and banks, the most profitable brokerages and securities, and the inclusion of other large and successful businesses. It is the dream of many to work in Wall Street.

wall-street

wall-street

Wall Street has built its name from its ability it has to raise capital. It has engaged with the most prominent businessmen the economic market has ever known and traded their stock to and fro. Though some believe that Wall Street operations are unfair and work in the favour of big businesses to which small ones stand no chance, others view Wall Street as entities that permit investors to be free to access all opportunities as any other business and trade just the same. Hoping of course that they too will be successful.

Wall Street took a hit after September 11. There were dire impacts to its financial services of which many say took a downturn. There were substantial cuts that had to be made and a visible drop in end of year bonuses was seen. Why should we be worried about those who did not get bonuses? One may ask, however to clarify; brokers are paid commissions, and get a token annual salary. A bonus lessens the salary in which a broker gets, hence why the bonus itself is of great importance to them.

There are several estimates that have been made about the contribution of Wall Street to the economy. The first being that Wall Street firms employed close to 200,000 persons in 2008. In 2006, it was said that 9% of the city’s work force and 31% of the tax base was made up of Wall Street. Another estimate was that in the year 2007, a figure close to $70 billion profit became 22 percent of the city’s revenue. Included in the estimate’s list was one from the year 2007, emanating from Steve Malanga, which said that the securities industry accounts for 4.7 percent of the jobs in New York City. Hence once has enough base to attest to the economic contribution of Wall Street, and how the stock trade business is one so lucrative, its financial implications are astounding.
All in all Wall Street in a represents financial and economic power. This we probably can all agree on. It can sometimes also represent superiority, politics, and financial dominance. Viewed negatively by those who cannot trade on it, Wall Street is a financial haven for those companies’ shoes stocks have made it to their boards. And to a few others, Wall Street is also just a great movie.

Value Investment

Value Investment

Value investing is the technique in which one trades in stock for a value that is less than their intrinsic value. As the name suggests, it is an investment that arises from the value of something. In this case, mostly stock. Here is how the technique works; an investor researches stock that he believes is being sold on the market at an undervalued price. They then buy the stock at its deflated price and upon market behavioral changes where stock markets are sensitive to positive and negative news about companies, the resulting stock price changes will yield profits for the investor.

value-investment

value-investment

It is not a simple task however to deduce the exact ‘intrinsic value’ of a particular stock. Intrinsic value for the same stock can be valued differently by several investors. One needs to conduct an extensive market research on that particular company and its performance over the past couple of years, and include their own personal knowledge about stocks, to be able to reach a close to accurate estimation of the intrinsic value of a stock. To protect investors against detrimental investing decisions with regards to the valuation of stock, there exists a concept called the ‘margin of safety’ concept. Margin of safety is the extent to which you can buy stocks at given price, with the allowance for an error in the value estimation.

There are also other factors that can affect value investing. One is the outlook upon which an investor is basing his investment value. Some investors gauge the present earnings and assets that are owned by a company. While others study the potential grown and performance of a company in the months and years to come. Though no one single method can be said to be definitely better than the other, and in some cases one value estimation strategy yielding profits while another yields a loss, the exact opposite can happen with a different investment. The truth is stock markets fluctuate rapidly and in some cases unpredictably. At the end of the day an investor should just try to buy stocks for a price less than what it is actually worth, and sell it later at a higher price.

So value investing is tricky. And it shouldn’t just be done on a whim Sound financial and stock trading advice from a professional who has been trading in the markets for years should be sought and careful consideration made to each purchase. When value investment is done right, it can reap the largest profits one has seen in a long time. Furthermore, it can result in the partial ownership of a company whose performance is sky high and whose earnings are quite impressive. One must keep a keen eye on the performance of this company to ensure that their investment continues to grow. Also, and signs of a decline in the reputation of profitability of the company should raise flags and one needs to be able to make the careful decision of when to sell the stock. One should sell their stock at their most highest value, just before a decline.

Risk management

Risk management

The process of risk management is known as the process of identifying, evaluating and placing in order the risks that may be involved in a particular venture. It is then one’s task to apply the resources that will be needed to minimize, control or completely erase the probability of the occurrence of the risky factors. Risks are the direct results of uncertainties. They arise from the frequency in environmental changes and hence creating an atmosphere of unpredictability.

Risk-Management

Risk-Management

Risk management in financial markets may easily result in liabilities of a legal nature, a credit nature and on the sustainability of future financial life-cycles. It would be wise that one employs strategies that would best manage financial threat i.e. he transfer of that risk to another party, the complete avoidance of that risk, the reduction in the impact in which that risk may have, on in the extreme case, the decision not to undertake that venture as the probability and cause of that risk would be one too large to bear.

Risk management occurs every time an investor attempts to quantify the chances of losses occurring from an investment. This may happen either decidedly, or just by the virtue of desiring the safe investment of funds. It is then that one can take the appropriate measures to mitigate the risks and their causal effects. Insufficient risk management can be disastrous. The consequences for investors may be dire and cause bad credit.

Risk management can thus be summarized into two parts. The identification of all possible risks within the investment, and the strategies to handle those risks. Within the sphere of stock trading, risk management can follow the subsequent sequence;

1. Planning expenses
Be geared towards consistent returns rather than a more aggressive attack on one large financial reap. This will ensure that your expenses are covered for a sustainable period of time till you are able to enjoy the profits.

2. Be principled about your stock trade
At the forefront of your investment, place the following principles; the aim for consistent profitability, superior returns and your capital preservation.

3. Preserve capital management
Think first of the possibility of loss before the possibility of gain. This will assure you that you will invest in that will bring you better management of funds.

4. Identify your risks
There is no amount of money that is too little to be worthy of any risk taking. Especially if the risks are avoidable and can be mitigated. List all possible risks, and beside them, all possible ways in which they can be addressed.

5. Be strategic
Stock trading often appeals to our inner most desire for success. It is thus fairly simple for one to fall into the trap of the emotional desire to invest in stock instead of the strategic approach to it. Be as strategic as possible in stock trading and keep a clear mind in all decision making.

6. Excel
Concentrate on trading right. Be smart and always consult financial advisors as often as you can. Aim to excel and you will most likely make the right decisions.

Blue Chips

Blue Chips

A blue chip is a financially stable, reputable, nationally recognized company. It is a company that trades in the sale of highly qualitative goods and services. Blue chips are known to be companies that make sound financial and economic decisions which can see them through economic fluctuations and hostile financial conditions. It is due to this the blue chips prevail while other companies succumb to bankruptcies and economic downturns.

blue-chips

blue-chips

Have you ever played the game of poker? In poker, a blue chip is the chip that has the highest value. A white chip is usually worth $1, red worth $5, and a blue one $25. It is because of this that blue chip companies got their name. Within the business market, these companies are the ones that are considered to have the highest value. Anyone who can afford, should trade in the stocks of blue chips. However it will be the most reputable businessmen who will manage to do so because blue chip stocks usually have a capitalization in the billions.

Blue chip stocks are defined as a component of reputable market indexes. They usually ay stable and/or rising dividends for long periods of time. Though the payment of a dividend for a blue chip share is not mandatory, most blue chip companies however do pay them. An investment in a blue chip company or in blue chip stocks is considered a safe investment. Blue chips are known to survive market cycles and extreme conditions in which other companies may face financial distress. Examples of blue chips companies are Coca-Colas. Walmart, Johnson and Johnson, Unilever, PepsiCo and Mobil.

There are several reasons why one should trade in blue chip stock and these are;

1. They have a commendable record of stable earning power over several years
2. They hold a long record of dividend payments to common stock holders
3. Dividends are payable to each share
4. The companies hold very strong balance sheets
5. High credit ratings in the bond and commercial paper markets
6. There is relatively a large revenue and market capitalization
7. Each blue chip company comes with a diversified product line
8. Blue chip companies have a unique competitive advantage. Within the business market they have cost efficiencies, with franchise value and/or distribution control

Blue chips stocks can be sold like any other stocks on the market. The buyers however, or at least those who would qualify to buy them, would be few. An investor can buy blue chip stocks through a broker, through a direct stock purchase plan, or through a dividend reinvestment plan. After the purchase of blue chips stocks, one would most likely own them for a very long time. The decision to sell would be a very rare one as one has the security of regular income to last them a lifetime over. One can confidently say a lifetime because blue chip companies are able to borrow money at very low costs, they have excellent reputations and when topped with the high sales and stable brand, the company is most likely to survive a very long time.

Trading Stocks

Trading Stocks

It is pertinent to know how trading stocks works especially if you are in the market for some stock of your own. The trading of stocks occurs at a stock exchange market. A place where buyers and sellers meet to sell the shares they have. There can be two types of stock exchange markets; some physical locations depicted hilariously through Wall Street movies, and other markets virtual, where they communicate virtually till they reach agreeable terms.

trading-stocks

trading-stocks

Another distinction within the stock exchange market is that of a primary market or a secondary one. A primary market is a stock exchange market at which securities are first created, i.e. by means of an IPO. In contrast, a secondary market is where investors and prospective investors now trade in the issued securities independent of the issuing-company’s involvement. The stock exchange market previously talked about as where stocks are bought and sold, is a secondary market.

One example of a stock exchange market is the New York Stock Exchange. Started in 1792, the market has taken the world by storm with reputable companies’ shares such as McDonalds, Coca-Cola and Gillette having their stocks sold on this market. The New York Stock Exchange is a market that has a physical location. Thus buying and selling of stocks is done face to face. Firstly, orders for stocks are made via a brokerage firm. They in turn flow to brokers who have designated trade posts. A specialist then tries to match a buyer and a seller through the trade post. And the cycle repeats itself when a sale is completed. The price of stocks is determined via the auctioning method. In this method, the highest price one is willing to pay for the stocks over all others becomes the selling price.

Another type of a stock exchange market if the NASDAQ market. This is a virtual market in which there is no physical location for the market. Instead, trading is done via telecoms and computers. Dealers continue to bid and request prices for various stocks. Buyers and sellers are then facilitated with a contact mode in which they can then discuss further the sale of the stock.

There are then other exchange markets. These include the stock markets such as the American Stock Exchange market (AMEX) or the London Stock Exchange. An over-the-counter bulletin board (OTCBB) also exists as a stock exchange market that is in a general category. At this market, there is little or no regulation at all on the sale and purchase of stocks. Which makes for the buying of stock at this type of market very risky. Needless to say, this market caters for those who do not pass the listing requirements at other stock exchange markets. It is thus here that they come to make their stock investments. Trading in stock is a very risky business that needs great care and a lot of financial advice prior to the purchase. However if you do make a good purchase, you will yield high returns in the years to come.

Stock buying

Stock buying

Stocks are share in a company. They depict a unit ownership of a company. Shareholders are thus said to be the owners of a company. The more shares you own, the larger the portion of the company to which you are entitled to. Stocks are thus very valuable and are usually among the best forms of investments. It is no surprise that the stock market is one of the busiest and most profitable forms of trade that exists to date.

stock-buying

stock-buying

Before we proceed to speak of buying stocks, let us first get a quick grasp of the types of stock. There are commonly two types of stock; common stocks and preferred stocks. Common stocks are those that have voting rights. In most cases it is one share, one vote. Common stocks are highly profitable in the long run as they yield high returns. Preferred stock in most cases do not come with voting rights. Instead, their advantage is that they are entitled to regular, timely dividends. For an investment in which you would like to reap the rewards in a short time span, preferred stock would be better than common stock decision-wise.

So, how does one buy stock? One can purchase stocks through a broker. This is the most used method. A broker buys the stocks on your behalf on the stock market. They are most knowledgeable on stock value fluctuations and how stock trends operate. They will be in the best position to inform you on when to buy stocks and at which price. Brokers are of two types; discount brokers and full-service brokers. Discount brokers do not offer much in terms of added services. Instead all they do is facilitate the purchase on your behalf. Other aspects such as the management of your stock account, are duties you will have to perform on your own. A full-service broker however sees you through the entire purchase process, they provide you with regular advice and updates, they manage your account for you and they also take the lead in all purchases.

Another way in which you could buy stocks is through dividend reinvestment plans or direct investment plans. This is a stock purchase process in which companies, allow shareholders to purchase stock directly from them, at a minimal cost. In this method, all third parties are exclude and the transaction is strictly between the prospective shareholder and the company itself. In most cases this type of stock buying is done when the company is clearly aware of whom they would like the owners of the company to be. Dividend reinvestment plans are favorable in the event that one desires to keep making investments of a small nature, at regular intervals.
Stock buying is a very wise decision. Over time, the value of stock rises and the return on your investment may be multiple fold what you put in initially. With the high demand for stock, one can easily sell and buy stock back and forth till they accumulate the desired net worth.

Shares

Shares

A share, in its basic definition, is the unit ownership of a company. It represents that extent to which one has a claim over the company’s assets as well as its earnings. It is obvious, the more the shares the more the ownership, and in some instances, the more the shares, the more the control. How is this so? The acquisition of a company’s shares, means in other words, that you are becoming an owner of the company. This being the case, your stake in the company will allow you to be included in decision making. Each asset, or income owned or made by the company, will have a portion of which will be due to you, thus each contract or trademarks should depict the same.

shares

shares

The term ‘control’ and ‘ownership of the company when it comes to shares has its limitations. It does not mean that one is at liberty to do as they please with the company. A good example of this is that you will not be included in the running of the day to day business of the company, so do not expect to be called in when they are hiring a new office secretary. Instead, you will be invited to annual meetings, of which depending on your shares, will be the extent to which you will have a say to elect board members for example.

This having been said, it would only be logical that you would want your interests protected. That is, the investment you made in buying the shares of that particular company. In this case, you would expect the management of the company would run the company in the way that is most profitable, which in turn would earn more profits and yield a greater return to you. But what if they don’t? Shareholders can vote off the management and have it removed or changed. Even just shuffled. All this is allowed because the company is supposed to increase the value of the firm on behalf of its shareholders.

The ownership of your shares are authenticated by a stock certificate. This shows that you are the recognized legal owner of that portion of the company. Shares are now bought and sold on a stock market. And with the technological advancement today, share ownership records are maintained electronically to necessitate buying and selling. It would be time consuming walking around with the stock certificate trying to sell it back and forth.
However let us not mislead each other, a share or two in a company will not allow you to get the General manager fired. In all honesty, it might not even be easy to just buy one share or two. It would take large sums of money and plenty shares to actually be able to have voting rights, sit at annual meetings and vote off management. Also, the company would not want 100,000 owners of the company. Imagine what a board meeting would look like! It would most probable be chaos.

Investing Decisions

Investing Decisions

One needs to be extremely careful when making investment decisions. It is not as simple as the purchase of a new sofa for the lounge or a new bike for the kids. The most critical factor in making investing decisions is that the returns are only realized after a considerable about of time. In other words, you would be committing to tied up capital for a few years. There are thus several factors you must consider when making investment decisions.

Investing Decisions

Investing Decisions

Your financial situation and cash flow forecast

It is important to accurately map out your current financial status. With this one should carefully jot down their available funds and the expenses to which those funds are due to be allocated. One should not only stop at this, instead they should proceed to further identify their ‘assured’ cash flow in the weeks, months and years to come. I reiterate the term ‘assured’ because it is of paramount importance that one be certain of this income. A job, for example will suffice as assured income. The reason this is important is because your investment might lock down your funds for two to five to even ten years. It is necessary that you be able to sustain yourself till the investment can begin yielding results.

Consider an array or investments

It would also be a good idea to consider an array of investments. As the famous saying goes, don’t put all your eggs in one basket. Research on the stocks for several companies. Do an in depth search of those companies’ performance in last couple for years and gauge their performance. Weigh the value of the firm and assess whether it has been increasing or decreasing. With this vast wealth of knowledge, you would be in a better position to make a much more educated decision.

Create a back-up plan

A smart person wold create a contingency account in which they could commence savings for the event that all does not go well with the investment. It is pertinent to know for example, that in the case of common stocks, if the company declares bankruptcy, common stocks are the last to be reimbursed. The company would be required to pay back all its creditors and loans first, prior to them considering how to pay a common stock shareholder back. In a case such as this, a contingency account would save as a great help and would prevent you from being in dire straits.

Always double check

The purchase of stock is not like the purchase of other goods or services. One is required to have done thorough checks on the investment they are about to make. Always double check the information you are getting. Always ensure all that you are engaging in is authentic. And always avoid any circumstances that can in any chance lead to fraud or fraudulent activities. With the eye for genuine and reliable business transactions, you are bound to make wiser decisions that will save you from being cheated or duped.

Classes of Stocks

Classes of Stocks

There is a difference between classes of stock, and types of stock. This article will speak of both. There are generally two types of stock; Common stock and preferred stock. As the former suggests, common stocks are the most common among several companies, and in many cases, companies will be satisfied with having only these to trade on the stock market, there are other companies however who will opt to have different types of stock. The latter, preferred stocks only exist when a company also has common stock, i.e. they can never stand alone. Nonetheless, a company can have only common stock or both common and preferred stock.

Classes of Stocks

Classes of Stocks

Common Stock

Common stocks are stocks in which a person has a vote per share. That is to say, one share, one vote. Common stock is often said to be a little riskier when compared ti preferred stock, this because in the event that the company becomes bankrupt, these are the last to be paid. Over a long term period, the accumulation of common stock becomes very valuable as it depicts capital growth and has higher returns. They perform better than bonds and preferred stock, however, as said before, this takes little time.

Preferred Stock

Preferred stock are shares that guarantee their owner a fixed dividend at regular intervals. This is the reason why they are said to be less risky. Otherwise known as a fixed-income security, preferred stock holders are also paid first, prior to a common stock holder in the event of bankruptcy. Some preferred stocks include the right to vote, while others don’t, it all depends on the company and its policies. A disadvantage of preferred stock is that some of them may be callable, and this means that upon maturation of the call date, the company has the right to redeem these shares, be it the wishes of the owner or not.

Classes of Stock

A company may divide its shares into classes. In many cases this is done to control the voting power within the company. By varying the classes of stock, it is easier for the organization to ensure one class has the final or majority say in certain decision making situations.

Class A

Just as the pass grade A would depict in a class, Class A stock is considered to be superior to the other classes of stock. It is common that in many instances, a Class A stock holder may have as many as 10 ten votes during company decision making.

Class B

As the sequence would go, Class A stock would be followed by Class B and C stock. Many companies that will have Class A stock automatically having a category of Class B stock too. Class B stock will have less votes per share. These usually being just one vote per share. In many cases, Class B will not necessarily have the same dividend per share as Class A neither is it guaranteed to either be more or less.

To Conclude

There are many classes of stocks. The amount of classes is decided by the founders of the company or its current directors. Different classes of stocks have different attributes, values, rights or dividends.