I OWN THAT COMPANY!
the past, to have a better overall performance than the larger compa- nies, but they have also proven to be more volatile.
SPECULATIVE STOCKS. Stocks that present a greater risk to the investor than common stocks in general are speculative. Typically, hot new issues and penny stocks are speculative. While some stocks may be easily qualified as speculative, others may not be so easy.
Over the past few years, we’ve seen many small companies, particularly dot.coms, release new issues of their companies or take them public for the first time. These offerings found a highly com- petitive marketplace, thus driving their share prices skyward. Unfortunately for investors, the market for these stocks usually drops just as fast as it rises, sometimes even resulting in the com- panies going bankrupt.
FOREIGN STOCKS. Although the easiest way for investors to hold foreign stock is through different types of mutual funds, Americans can buy stocks in individual foreign companies through American Depositary Receipts (ADR). These receipts are listed on U.S. stock exchanges and are an alternative to direct investing. Asset allocation usually recommends that a portion of an investor’s portfolio be held in foreign stocks.
Market capitalization—The price per share of a company multiplied by the number of outstanding shares.
Large-capitalization stocks—The stock of a company with market capitalization of more than $5 billion.
Mid-capitalization stocks—The stock of a company with market capitalization between $1 billion and $5 billion.
Small-capitalization stocks—The stock of a company with market capitalization of less than $1 billion.
Stocks may sound like the perfect investment choice for you, but remember, not everything is as great as it seems. Until the year 2000,