CandleFocus Glossary Editor
Common stock is a fundamental security that represents ownership in a corporation and is the foundation of the financial markets. It is the most widely traded security on the major exchanges and is the main source of financing for most companies. As a result, understanding common stock and its risks and rewards is important to any investor.
Common stock holders are considered part owners of a corporation, entitling them to vote on certain corporate matters and potentially earnings returns. Unlike creditors and bondholders, common stock holders don't receive an obligation of payment as they are last in line to be paid in a liquidation event. The payment of dividends to common stock holders is at the discretion of the board of directors and could vary greatly from one period to another depending on the ratios of revenue and profits to expenses and debts.
Common stock holders typically have greater exposure to risk than other types of equity holders. For example, preferred stock holders may receive fixed, priority dividend payments, while common stock holders may receive no dividends at all or only a small dividend as the offer may vary from one period to the next.
Common stock holders tend to benefit from stock appreciation as the value of their shares may increase depending on corporate performance and the overall market sentiment. While this can provide potential capital appreciation, common stock can also be highly volatile, putting the common stock holder at risk of large capital losses.
Common stocks are classified as either growth stocks or value stocks. Growth stocks are companies that have the potential to increase in value due to increasing profits, while value stocks are companies with lower prices in relation to their fundamental value. Investors typically diversify their portfolios by investing in both growth and value stocks based on their risk appetite.
Overall, common stocks are an important part of the financial market and can provide investors with the potential for capital appreciation and income in terms of dividend payments. However, it is important to recognize the risks associated with common stock so that investors can make informed decisions when evaluating potential investments.
Common stock holders are considered part owners of a corporation, entitling them to vote on certain corporate matters and potentially earnings returns. Unlike creditors and bondholders, common stock holders don't receive an obligation of payment as they are last in line to be paid in a liquidation event. The payment of dividends to common stock holders is at the discretion of the board of directors and could vary greatly from one period to another depending on the ratios of revenue and profits to expenses and debts.
Common stock holders typically have greater exposure to risk than other types of equity holders. For example, preferred stock holders may receive fixed, priority dividend payments, while common stock holders may receive no dividends at all or only a small dividend as the offer may vary from one period to the next.
Common stock holders tend to benefit from stock appreciation as the value of their shares may increase depending on corporate performance and the overall market sentiment. While this can provide potential capital appreciation, common stock can also be highly volatile, putting the common stock holder at risk of large capital losses.
Common stocks are classified as either growth stocks or value stocks. Growth stocks are companies that have the potential to increase in value due to increasing profits, while value stocks are companies with lower prices in relation to their fundamental value. Investors typically diversify their portfolios by investing in both growth and value stocks based on their risk appetite.
Overall, common stocks are an important part of the financial market and can provide investors with the potential for capital appreciation and income in terms of dividend payments. However, it is important to recognize the risks associated with common stock so that investors can make informed decisions when evaluating potential investments.