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Alternate Types of Investment - Common Stock all the notes pertaining to common stocks. includes sample calculations, diagrams, and examples

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Wilfrid Laurier University
Jim Mc Cutcheon

L6BU11112102011Alternate Types of InvestmentCommon StockCommon stockholders are the true owners of any organizationThey bear the greatest levels of risk but also enjoy the greatest potential rewards with regard to both dividends and capital gains when compared to bondholders and preferred stockholdersCharacteristics of Common StockVoting rightsoMajor issues such as stock splits reverse splits and mergers are voted upon by stockholders unlike bond holders and preferred stock holdersRight to receive dividendsoDiscretionaryoNo fixed amountoDependent upon company profitabilityLiquidation rightsoEqually share money left upon bankruptcy last in line so empty promisePreemptive rightoWhen new shares of CS are issued this right says you must first offer these new shares to existing shareholders and must do so in a way that allows them to maintain their percentage share of ownershipHow are Common Stock Prices DerivedBonds and Preferred stock Prices are closely related to the prevailing rates of interest in the economyStrictly on the basis of the laws of supply and demandThe sum total of all investors perceptions of the future profitability of a companyIf investor feels a company will be highly profitable in the future that means high levels of dividend payout and appreciation in share values capital gainsThis will mean high levels of demand for a limited supply of shares which will force stock prices to riseThe reverse holds true if investors feel a company will not be profitable in the futureThis means low levels of demand and falling stock pricesStock Market TransactionsStraight Buy and SellMost common type of transaction in stock marketBuy lowsell high strategyBuy the shares hold for a period of time and sell at a future date
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