I OWN THAT COMPANY!
Stocks represent ownership in a company. They are traded publicly on stock exchanges throughout the world. Shareholders have the right to vote at shareholders’ meetings and review the books of the company. Generally, I don’t recommend holding more than five per- cent of an investor’s portfolio in individual stock due to the risk fac- tor associated with stocks. There are two types of stock we discuss: common and preferred.
Common Stock Common stock can help you accumulate wealth in two ways. First, they provide income through dividends, which are distributed to shareholders from corporate earnings. Second, the stocks can appre- ciate in value. This is generally the result of successful company management and products, or the prospect of future successes. Com- mon stocks allow the stockholder, as part owner of the company, to participate in the firm’s profits.
It is important to remember that the stock value may depreciate as well. A number of reasons may go into why a stock depreciates instead of appreciating. It varies from stock to stock and industry to industry. For instance, Lucent Technologies was trading at around five to six dollars per share during the summer of 2001. This doesn’t mean that it’s a bad company, or even a poor investment. Depending on your risk tolerance and your outlook, you might think purchasing some shares of Lucent right now is a good investment decision that will pay off in the future.
Stocks traded publicly are easily converted into cash. Because of this, they are considered readily marketable investments. They aren’t considered liquid, though, because the sale of the stock could result in a loss of principle. Nonpublicly traded stocks are neither liquid nor readily marketable because they are difficult to sell and the selling price is uncertain.
Publicly traded stocks are exchanged on stock exchanges around the world. The largest exchanges in the United States are the New York Stock Exchange (NYSE) and the American Stock Exchange