Three Main Uses Capital Appreciation Income Liquidity

What is it?
Sometimes referred to as shares, securities or equity. Plain and simple, common stock is ownership in part of a company. For every stock you own in a company you own a small piece of the office furniture, company cars, and even that lunch the boss paid with the company credit card. More importantly, you are entitled to a portion of the company’s profits and any voting rights attached to the stock. With some companies the profits are typically paid out in dividends. The more shares you own, the larger portion of the company (and profits) you own.

Common stock is just that, "common". The majority of stocks trading today are in this form. Common stock represents ownership in a company and a portion of profits (dividends). Investors also have voting rights (one vote per share) to elect the board members who oversee the major decisions made by management. In the long term, common stock, by means of capital growth, yield higher rewards than other forms of investment securities. This higher return comes at a cost as common stock entails the most risk. Should a company go bankrupt and liquidate, the common shareholders will not receive money until the creditors, bondholders, and preferred shareholders are paid.

Objectives and Risks:
Over the long term, there is no investment that provides better returns at a reasonable risk than common stock. History has dictated that common stocks average 11-12% per year and outperform just about every other type of security including bonds and preferred shares. Stocks provide potential for capital appreciation, income, and protection again moderate inflation.

Risks associated with stocks can vary widely, and usually depends on the company. Purchasing stock in a well established and profitable company means there is much less risk you'll lose your investment whereas by purchasing a penny stock your risks increase substantially. By using margin stocks also allow you to dramatically increase your leverage in a stock. This is only recommended for experienced investors.

How to Buy or Sell it:
The most common method to buy stocks is to use a brokerage, either full service or discount. There is no minimum investment for most stocks (other than the price per share), but many brokerages require clients to have at least $500 to open an account. Dividend Reinvestment Plans (DRIPs) and Direct Investment Plans (DIPs) are ways individual companies allow shareholders to purchase stock directly from them for a minimal cost. DRIPs are also a great way to invest money at regular intervals.

Strengths:

common stock is very easy to buy and sell especially with progresses in the Internet it is very easy to find reliable information on public companies making analysis possible. there are over 10,000 public companies in North America to choose from.

Weaknesses:

your original investment is not guaranteed. There is always risk the stock you invest in will decline in value and you may lose your entire principal. your stock is only as good as the company you invest in, a poor company means poor stock performance.

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