What is a stock?

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Here's a simple explanation that anyone can understand.


]ASF==What is a stock?==

A stock is an ownership share in a corporation. [1] Each of these shares denotes a part ownership for a shareowner, stockholder, or shareholder, of that company. Stocks are traded on exchanges all over the world, the largest is the New York Stock Exchange or NYSE. Stocks are identified by their ticker symbol. For example, General Electric is identified as GE. Investors can buy a share in companies, or a share of a diversified global portfolio of stocks. Individual Investors can purchase shares for themselves, at a brokerage of their choice, or direct from the company, wherever they have an account set up.

There are different types of shares, common, preferred and unlisted. Most shareholders purchase common stock. The goal is for capital appreciation, as well as income from interest, and dividends, so the investor can have a profit that beats monies in Treasury bills or beats inflation. Over time, stocks have outperformed cash and bonds; this takes into account depressions, world wars, and other world changing events. Stocks automatically adjust for the inflation of the currencies.

14c Stocks were instruments of punishment. [2] The original Stock Market was a fish and meat market in the City of London on or near the later site of Mansion House, so called perhaps because it occupied the site of a former stocks. Stocks "subscribed capital of a corporation" is from 1610s, Place where securities are bought and sold 1809. [3]

12c Markets were a place to meet at a fixed time for buying and selling livestock and provisions, to trade, deal in, buy, wares, merchandise, public building or space where markets are held" first attested mid-13c. Sense of "sales, as controlled by supply and demand" is from 1680s, market research is from 1926. [4] Stock exchange is attested from 1773. [5]

Common stock

Common stock, also known as ordinary shares and common shares of stock, grant the shareholder a proportion of the company's dividends, voting rights, and earnings growth. Shares that are traded and bought by retail investors are usually shares of common and preferred stock. When an investor purchases shares of common stock, they are essentially becoming an owner in the equity of the company. In the event of a liquidation or bankruptcy of a company, the common stock shareholder is one of the last creditors paid. Common stocks often are divided into different classes such as Class A and Class B stock. Typically the Class A shares have voting rights while the Class B shares do not. Different share classes may also represent a fraction of a corresponding stock with a different share class (ex. Class B shares trade at 1/30th the price of Class A shares).

All owners, have the responsibility to vote for the board of directors, CFO, and the CEO.

Preferred stock

Preferred stock is special stock sold to particular institutions or individuals that grant the holder priority over common stock holders in terms of dividends and bankruptcy claims. The drawback is that preferred stocks usually have no voting rights. The price of preferred stock in a company will usually differ from the price of common stock, a reflection of its different rights and privileges.

Preferred stock can either be cumulative or noncumulative. A cumulative preferred stock requires that if a company fails to pay any dividend or any amount below the stated rate, it must make up for it at a later time. Dividends accumulate with each passed dividend period, which can be quarterly, semi-annually, or annually. When a dividend is not declared in time it is said that the dividend has "passed" and all passed dividends on a cumulative stock is a dividend in arrears. A stock that doesn't have this feature is known as a noncumulative or straight preferred stock and any dividends passed are lost forever if not declared.

Unlisted stock

Unlisted stocks are not listed on any stock exchange and may be common, or preferred. They are purchased in direct placements from the issuer of the stocks, or in the secondary market. The nature of a trading market in non-listed securities cannot be predicted. However, such stocks sometimes carry higher yields, or greater protection, than would be typically available for publicly offered stocks of the same type. On the other hand, non-publicly traded stocks are sometimes subject to restrictions on resale and the market for their resale is less liquid than for publicly traded stocks. There is no active market in non-listed stocks. [6]


  1. Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. ISBN-10: 0618176519 pg359
  2. [1]
  3. [2]
  4. [3]
  5. [4]
  6. The Turkish Investment Fund, Inc., prospectus March 16, 2007 pg17
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