Stocks are the shares in a company that are usually sold to the public for purchase. Stock is the common shares in which ownership of a company is divided in an auction process. In ordinary language, the stocks are called “common stock”. A single share of such stock represents a fractional share in a percentage of ownership in the company in accordance to the number of outstanding shares. There are many types of stocks and their respective characteristics and advantages are discussed in detail in later chapters of this guide.
Majority of large companies in the U.S. and abroad issue common stocks. They represent an important source of funds for most companies. Common stock is issued for common purposes like increase in the cash resources of the company, dividend payment and as an additional source of income for the shareholders. It is usually traded on U.S. exchanges.
Penny stocks are shares that are generally traded on the Over-the-Counter Bulletin Board (OTCBB) and Pink Sheet stock exchanges. The price of such stocks is low and generally depends on the general demand among investors and brokerage firms for such stocks. The most important advantage of such stocks is that they pay dividends only after a period of three or more months. During the first few months of trading, most of such companies may pay dividends only infrequently.
Long term investors prefer mutual funds that invest in U.S. stocks. They follow the investment thesis of actively tracking and maintaining a portfolio of stocks that pay high dividends. The key takeaways for investors are that active management of a portfolio is always more profitable than passive investment in securities. Diversification of portfolios is an important step towards achieving this.
After the famous crash in 2021, the overall market was affected by a deep recession. This resulted in weakening of financial markets all over the world. The financial markets were affected not just in the United States, but also in other major economies all over the world. It became difficult to survive in the short term market conditions. Many companies and sectors were hit hard and a negative outlook is being portrayed by the stock exchange market. A key takeaway for investors is that even though the market has worsened, the recession cannot be avoided and will only last for a few years.
There are many investors who have lost money during this period, but as things improve, they regain confidence in the stocks. Investors need to diversify their portfolio of investments and must avoid stocks that pay high dividends. As the market improves, the overall earnings of companies will also rise. The key takeaways for investors are that it is always better to buy low and sell high.