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Stock
Definition
The stock of a company normally is common stock. There is another type known as preferred stock, but this is issued less often. As a common stock holder, you have voting rights in a company and are an owner of a percentage of the equity of that company. Preferred stock does not have voting power normally and acts more like debt or a bond than stock in most cases. This is because preferred stock values normally do not fluctuate greatly like common stock (predominately because it is not traded as often or is illiquid) and it also pays a dividend like a coupon on a bond. There is a further subdivision of preferred stock which is convertible (known often simply as a convertible) to a fixed number of common stock shares after a certain date from their issuance. It is important to note that the above characteristics are generalizations and these characteristics may vary. For example, not all common stock may vote or some stock may give special rights to certain parties.
Using the term Stock :
Mr. Wallaby believes strongly in the long term earnings power of the stock market so he invests 10% of his yearly earnings in the market. He keeps a diversified portfolio however and common stocks only make up 40% of his overall portfolio. With bonds and a small percentage of alternative investments making up the rest.
Pay Special Attention To :
Stock values can change quickly. As the most junior securities in the capital structure, their values can go up or down quickly based on opinions, rumors or facts circulating in the market place. Over time, stocks have been good earners and builders of wealth; however, they should make up only a portion of an overall diversified portfolio.
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Related terms
bonds
'Stock' appears in the definitions of these other terms:
Actual Extreme Events Actual Extreme Events After-Tax Asset Allocation Alternative Investments Bonds Call Option Dawn Raid Derivatives Earnings Per Share (EPS) Halloween Investment Strategy Hedge Fund Insider Trading Pairs Trade Price to Earnings Ratio Put Option Return on Equity (ROE) Tender Offer Zero-Cost Collar
