Stocks Guide

How to Use Online Stock Screens to Identify Investment Candidates

Back when Fred Flintstone and I were researching stocks (that is, before the Internet), we had to either rely on the advice of a broker who was paid only when we bought or sold or we had to dig through mounds of annual reports, 10-Qs, and an assortment of documents that were months old by the time we got them.

Researching more than a few companies was almost impossible unless you had a staff of analysts working for you. Comparing several companies was tedious and difficult.

Thank goodness, the “good old days” are gone forever.

Today, any investor can access powerful research tools that before the Internet were not available and many of them are free. Of course, there are some very sophisticated tools that come with hefty price tags; however, for most investors all the research they’ll need is free or available for a modest subscription.

Stock Screener

The most basic research tool is the stock screener. This handy program does in nanoseconds what would take you hours and hours of research by hand to do – and best of all, there are many of them on the Internet free for you to use. Some of the better ones come as part of subscription packages to the better research sites, but you can get a feel for how they work for free.

The concept is simple. You want to identify stocks that meet certain criteria. (Incidentally, this is how you go about building a portfolio, rather than haphazardly investing in whatever stock looks good at the moment.)

Stock screening programs allow you to enter qualifiers such as industry type, market cap, sales, dividends, and so forth. The more sophisticated the screen, the larger number of qualifiers.

After you put in all the qualifiers, the screener looks at all the companies listed on the major exchanges and pulls out those that meet your qualifications. You get a list of the companies. If the list is too large, you can run the screen again with tighter qualifications to reduce the number of hits.

The more sophisticated screeners allow you to run further screens on the set you just generated, while the free screeners tend to leave you with just the list. Either way, you have just saved yourself hours and hours of work by narrowing down the possible candidates.

MSN Money.com

One of the simplest and easiest to use comes from MSN Money.com. Despite its simplicity, the screen yields some powerful results.

The screen lists your results with links to each company. Click on the link and you will get a financial snapshot of the company. It is a powerful tool to get you started.

Once you are comfortable with the basic screener, download the free deluxe screener. It takes some getting used to and is much more detailed than the simple screen, however if you really want to narrow in (and, ultimately, you do) on investment targets, get to know your way around screeners like this one.

Many look and work very much alike, but you need to know what you are looking for and what you need to ask from the screener before they can be of real benefit. The great thing about using the free screeners like this one from MSN.com is you can spend all the time you need experimenting and testing without running up a big bill.

Stock screeners are just one tool; however, they should be the first tool you master as you begin learning to do research.

Basic Steps in How Stock Trading Works

Trading stocks. You hear that phrase all the time, although it really is wrong – you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels).

Trade = Buy or Sell

To “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency.

Yet, they still must handle your order for 100 shares of Acme Kumquats with the same care and documentation as my order of 100,000 shares of MegaCorp.

You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work. If you want to dig deeper, there are links to articles explaining the technical side of the markets.

Two Basic Methods

There are two basic ways exchanges execute a trade:

• On the exchange floor
• Electronically

There is a strong push to move more trading to the networks and off the trading floors, however this push is meeting with some resistance. Most markets, most notably the NASDAQ, trade stocks electronically. The futures’ markets trade in person on the floor of several exchanges, but that’s a different topic.

Exchange floor

Trading on the floor of the New York Stock Exchange (the NYSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.

Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the NYSE.

1. You tell your broker to buy 100 shares of Acme Kumquats at market.
2. Your broker’s order department sends the order to their floor clerk on the exchange.
3. The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of Acme Kumquats. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.
4. The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market. A few days later, you will receive the confirmation notice in the mail.

Of course, this example was a simple trade, complex trades and large blocks of stocks involve considerable more detail.

Electronically

In this fast moving world, some are wondering how long a human-based system like the NYSE can continue to provide the level of service necessary. The NYSE handles a small percentage of its volume electronically, while the rival NASDAQ is completely electronic.

The electronic markets use vast computer networks to match buyers and sellers, rather than human brokers. While this system lacks the romantic and exciting images of the NYSE floor, it is efficient and fast. Many large institutional traders, such as pension funds, mutual funds, and so forth, prefer this method of trading.

For the individual investor, you frequently can get almost instant confirmations on your trades, if that is important to you. It also facilitates further control of online investing by putting you one step closer to the market.

You still need a broker to handle your trades – individuals don’t have access to the electronic markets. Your broker accesses the exchange network and the system finds a buyer or seller depending on your order.

Conclusion

What does this all mean to you? If the system works, and it does most of the time, all of this will be hidden from you, however if something goes wrong it’s important to have an idea of what’s going on behind the scenes.

Risk and Reward are Part of Investing

“No pain, no gain.” How many times have you heard that cliché to describe something you really didn’t want to do? Unfortunately, investing carries a certain amount of risk and with that risk can come some pain, but also some gain.

You must weigh the potential reward against the risk of an investment to decide if the “pain is worth the potential gain.” Understanding the relationship between risk and reward is a key piece in building your personal investment philosophy.

Carry Risk

All investments carry some degree of risk. The rule of thumb is “the higher the risk, the higher the potential return,” but you need to consider an addition to the rule so that it states the relationship more clearly: “the higher the risk, the higher the potential return, and the less likely it will achieve the higher return.”

To understand this relationship completely, you must know where your comfort level is and be able to correctly gauge the relative risk of a particular stock or other investment.

Will I Lose Money?

Most people think of investment risk in one way: “How likely am I to lose money?” This statement describes only part of the picture, however. You should consider that risk and others when evaluating an investment:

• Are my investments going to lose money? (Is safety of principal more important than growth?)
• Will I achieve my investment goal? (Under-funding retirement, for example.)
• Am I will to accept more risk to achieve higher returns? (Are my investments going to keep me awake at night with worry?)

Let’s look at these concerns about risk.

Am I Going to Lose Money?

The most common type of risk is the danger your investment will lose money. You can make investments that guarantee you won’t lose money, but you will give up most of the opportunity to earn a return in exchange.

For example, U.S. Treasury bonds and bills carry the full faith and credit of the United States behind them, which makes these issues the safest in the world. Bank certificates of deposit (CDs) with a federally insured bank are also very secure.

However, the price for this safety is a very low return on your investment. When you calculate the effects of inflation on your investment and the taxes you pay on the earnings, your investment may return very little in real growth.

Will I Achieve My Financial Goals?

The elements that determine whether you achieve your investment goals are:

• Amount invested
• Length of time invested
• Rate of return or growth
• Less fees, taxes, inflation, etc.

If you can’t accept much risk in your investments, then you will earn a lower return as noted in the previous section. To compensate for the lower anticipated return, you must increase the amount invested and the length of time invested.

Many investors find that a modest amount of risk in their portfolio is an acceptable way to increase the potential of achieving their financial goals. By diversifying their portfolio with investments of various degrees of risk, they hope to take advantage of a rising market and protect themselves from dramatic losses in a down market.

Am I Willing to Accept Higher Risk?

Every investor needs to find his or her comfort level with risk and construct an investment strategy around that level. A portfolio that carries a significant degree of risk may have the potential for outstanding returns, but it also may fail dramatically.

Your comfort level with risk should pass the “good night’s sleep” test, which means you should not worry about the amount of risk in your portfolio so much as to lose sleep over it.

There is no “right or wrong” amount of risk – it is a very personal decision for each investor. However, young investors can afford higher risk than older investors can because young investors have more time to recover if disaster strikes. If you are five years away from retirement, you probably don’t want to be taking extraordinary risks with your nest egg, because you will have little time left to recover from a significant loss.

Of course, a too conservative approach may mean you don’t achieve your financial goals.

Conclusion

Investors can control some of the risk in their portfolio through the proper mix of stocks and bonds. Most experts consider a portfolio more heavily weighted toward stocks riskier than a portfolio that favors bonds.

Risk is a natural part of investing. Investors need to find their comfort level and build their portfolios and expectations accordingly.

How are Stock Prices Set Each Day?

How much does a share of stock cost?

That’s like asking how long is a piece of string. The answer is ‘it depends.’

Once a stock moves out of the IPO stage and into the open market, there are a number of factors that go into setting the price.

Opening Price

For example, Amalgamated Kumquats closes on Tuesday at 25½; what will it open at on Wednesday morning? The answer is: who knows. Most likely, it will open somewhere around 25½, but any number of things might cause it to open higher or lower. Before the market opens on Wednesday:

• Civil war in Elbonia, the prime producer of Kumquats
• President of Amalgamated Kumquats arrested for looting the company
• FDA says Kumquats cure baldness
• Huge oil reserves discovered on Amalgamated property

All of these circumstances and many others could influence the price up or down. In the end, it remains a question of what a buyer is willing to pay and a seller is willing to take.

The swirl of market, political, and industry news influences whether there are more buyers or sellers for a particular stock in the market at any one time.

Clean Slate

Every day the market opens, it’s a clean slate. Investors must meet no set prices. Stocks that the day before were flying high may not get off the ground today. The ugly duckling turns into a cash cow (how’s that for mixing metaphors).

The point is a share of stock is worth what someone else is willing to pay for it. That is the heart of investing. A stock may be a good buy at $35 per share and a terrible buy at $50 per share to one investor, however another investor may not think twice about paying $50 per share. Which is the right price? Often only time will tell. Many years ago, some investors thought $10 per share was too much for Microsoft and refused to buy it. Too bad for them.

Fair Price

Successful investors decide what a fair price for a particular stock is and that’s where they buy. They don’t let market hysteria goad them into overpaying. Likewise, if nothing has fundamentally changed with the company, but the stock is dropping along with the market, successful investors will sit tight and not be frightened off a good price. As you develop you investing skills, you will learn strategies and techniques to help you establish a fair price for stocks and either get that price or find another stock to buy that meets you investing criteria.

How Does Investing Differ from Saving?

Investing is the proactive use of your money to make more money or, to say it another way, it is your money working for you.

Investing is different from saving. Saving is a passive activity, even though it uses the same principle of compounding. Saving is more focused on safety of principal (the amount you start out with) and less concerned with return.

Your focus in investing is on return and can run the spectrum from conservative to very aggressive in terms of risk. One way you measure results is by the expected return weighed against the anticipated risks.

It is easy to slip into an unnecessarily complex discussion about whether a particular financial transaction was an investment or a savings deposit. However, it is important to understand that investing has some distinctive characteristics, which separate it from pure savings. Since we are discussing stocks, I’ll limit the characteristics to that type of investment:

• Ownership
• Upside Potential
• Risk

Each of these characteristics sets investing in stocks apart from savings in several different ways.

Ownership

When you buy stock, you are buying a piece of a company – you become a part owner. This ownership gives you certain rights, including voting on important matters before the company and participating in the profits if the company distributes dividends.

Virtually no savings instruments give you ownership. You may own a bank CD, but you don’t own part of the bank. You may own a U.S. Treasury bond, but you don’t own the government.

Upside Potential

When you own stock, you participate in the growth of the company. As the value of the company increases, so does you investment. If profits increase, you may receive bigger dividend checks. The stock price may continue to rise for a long period. Many of the early employees of Microsoft are millionaires because their stock has gone up dramatically.

If you have a bank CD that pays 3%, it is unlikely the bank’s president is going to call you one day and say, ‘we’ve had a great year, so I’m raising your interest rate to 6%.’

Risk

Along with the potential for extraordinary gain is the potential for loss. These two go hand in hand. You can lose money investing in stocks.

If the thought of losing money makes your stomach knot up, stick to savings instruments. However, you should know that even the safest savings instrument carries unseen risks. Most savings instruments trade security for return, meaning they pay very little. When you factor in inflation and taxes, many so-called safe savings instruments return almost nothing and some can actually lose ground.

Not all shares of stock are created equally. Authorized, restricted, float, outstanding and unissued shares all have different attributes. Investors need to know these terms to make informed decisions.

You will hear these terms and see some of them used in financial ratios, so it is important to understand how these types of shares differ.

First, let’s define the terms, and then I’ll explain why it is important to understand the difference.

• Authorized Shares – These shares represent the total number of shares of stock authorized when the company was created. Only a vote by the shareholders can increase this number of shares.
  However, just because a company authorized a certain number of shares doesn’t mean it must issue all of them to the public. Most companies retain shares for use later called unissued stock or shares.
• Unissued Shares – Shares a company retains in its treasury and not issued to the public or to employees are unissued shares.
• Restricted Shares – Restricted shares refer to company stock used for employee incentive and compensation plans. Restricted stockowners need permission of the SEC to sell.
  There is a waiting period after a company first goes public where insiders’ restricted stock is frozen. When insiders want to sell their stock, they must file a form with the SEC declaring their intention. Even insiders of established companies must file with the SEC before selling their restricted stock.
• Float Shares – Float refers to the number of shares actually available for trade on the open market. You and I can buy these shares.
• Outstanding Shares – Outstanding shares includes all the shares issued by the company, which would be the restricted shares plus the float.

Here’s a simple example with numbers to illustrate the relationship of these different shares:

• Authorized Shares – 100
• Unissued Shares – 20
• Restricted Shares – 10
• Float – 70 (100 – 20 – 10 = 70)
• Outstanding Shares – 80 (10 + 70 = 80)

Why is this Important?

Here are several key bits of information you can determine from looking at how these different share types stack up in relation to each other:

• Look at the relationship of unissued shares and restricted shares to float for where controlling interest of the company will reside. Many companies retain a large percentage of the authorized shares in their treasuries or in the hands of management through restricted shares.
  Companies do this to make sure no other company can seize control in an unfriendly takeover. They may also want to have stock handy for future issue instead of using debt to buy another company or for another major expenditure.
  Controlling interest held in unissued stock means outside shareholders will have little influence over the decisions of the company.
• If the float of a company is very small and the stock attracts attention of investors it can become volatile because of supply and demand imbalances.
  More buyers will drive the price up, which is not a bad thing if you own the stock. However, it may make the stock over priced relative to its earnings or other fundamental measures.
  Likewise, if the stock falls out of favor, sellers may have trouble unloading their shares, which would tend to force the price down further and more rapidly than fundamentals might indicate.
• Watch what restricted shareholders do. You can get this information from a variety of online sources. Here is a link to MSN Money’s insider trading search function. Just enter a stock symbol and it will return the most recent sales or planned sales by insiders or major shareholders.
  Most of the time, these sales signal nothing of interest to investors. When a large number of insiders, especially in young companies, file plans to sell major blocks of stock it could signal trouble.
• Notice when reading financial ratios whether they are using float or outstanding shares in the calculation. It can make a big difference in the outcome.

Conclusion

Understanding the terms used to describe various shares will help you get a better handle on analyzing companies.

One of the ways you make money with stocks is by investing in companies that pay dividends.

Dividends are profits the company distributes to shareholders. The companies don’t do this out of the kindness of their hearts – this is what a company is all about; making money for the owners.

Dividends usually don’t represent all of a company’s profits. The company retains some portion for future use - in acquisitions or to retire debt, for example.

Most companies pay dividends in the form of cash, although you may hear of occasions when a company uses stock instead. Many investors are attracted to stocks with a good history of paying dividends. These companies are usually well established and profitable, but may not offer much in the way of growth potential.

The company’s board of directors sets the dividend at a quarterly meeting. It is important to note that they are under no obligation to pay a dividend. If the company is hurting financially or the board is concerned about future prospects, it can forego the dividend.

The board sets the dividend rate at a per share basis. For example, the board may declare a quarterly dividend of $0.50 per share. This means if you own 100 shares of stock, you will get a check for $50 for that quarter.

Important Dates

There are four important dates to remember about dividends:

• The Declaration Date This is the date the board sets the dividend and announces when the stockholders will get their checks. The board also announces the Ex-Dividend Date, which is a very important date to know.
• Record Date This is the date when the company sets the list of shareholders to receive the dividend. You must own the stock before this date to get the dividend; however, it is the Ex-Dividend Date that is more important.
• Ex-Dividend Date This date usually falls 2 – 4 days before the Record Date. This date allows for the completion of all pending transactions, since it usually takes three days to settle a regular stock sale. The Ex-Dividend Date is the most important date as far as owning the stock if you want to receive the dividend.
• Payment Date This is the date the company mails the checks, often two weeks or so after the record date.

On the Ex-Dividend Date, the market discounts stock’s price since the dividend is no longer available to buyers.

Types of Dividends

Dividends come is two types: fixed and variable. Dividends that pay at a fixed rate go to owners of preferred stock, while variable dividends go to common stock holders.

Dividends offer investors another way to make money, especially if your goal is current income. Many investors find that buying and holding companies with a good history of paying dividends makes good sense for financial goals.

The Dow and Other Market Indexes Explained

The Dow is up (or down) so the market is great (or terrible).

If you read or listen to the popular media, you might get the impression that the Dow Jones Industrial Average, usually just the Dow, is the pulse of the market.

Other stock indexes like the S&P 500 or the Nasdaq Composite get play also, often in hushed or excited tones depending on numbers.

However, what do these and the other reported indexes really tell us and how should we use them?

What is an Index?

First, let’s look at what an index number represents. Although there are different ways to calculate index numbers, it is important to remember the numbers represent a change from an original or base value.

The number is not important. What is important is the percent change over time. This movement up or down gives you and idea of how the index is performing. Is the Dow up or down? The index is calculated “on the fly” during trading to give investors a sense of direction to the market it represents.

Notice, I said the index reflects “the market it represents,” not “the market.”

Most stock indexes, even those quoted as representing the total market, only reflect a portion of the actual market.

Here are the most popular indexes and the markets they reflect.

The Dow

The Dow Jones Industrial Average is the oldest and most widely known index. It is also the most widely quoted index and, mistakenly, considered the market barometer.

Originally, it was a simple average of the stocks in the index, but thanks to stock splits, spin offs and other transactions, more sophistication is now required. You can find more information at the Dow Jones Indexes site.

The Dow currently has only 30 stocks. However, each of these stocks represents one of the most influential companies in the U.S.

The Dow is the only major index that is price weighted, which means if a stock’s price changes by $1, it has the same effect on the index regardless of the percent change for the stock. In other words, a $1 change for a $30 stock has the same effect as a $1 change for a $60 stock.

The calculation of the Dow takes into account numerous stock splits over the years. By adjusting the math, it is possible to keep a historically viable index meaningful.

The Dow stocks represent about one quarter of the value of the total market, so in that sense it is a factor and big changes indicate investor confidence in stocks, however it does not represent small or mid-size companies at all.

S&P 500

The S&P 500 is the most frequently used index by financial professionals as a representative of “the market.” It includes 500 of the most widely traded stocks and leans towards the larger companies.

It covers about 70% of the market’s total value, so in those terms it is much closer to representing the true market than the Dow.

The S&P 500 is a market capitalization or market cap weighted index, as are almost all of the major indexes.

Weighting by market cap gives more importance to larger companies, so changes in Microsoft stock will have a greater impact than almost any other stock in the index.

Even though the S&P 500 is weighted toward larger companies, it is a more accurate gauge of the broader market than the Dow is.

Even though some of the talking heads on TV may emphasize the Dow, you will get a clearer picture of the market by focusing your attention on the S&P 500.

The Nasdaq Stock Market Composite

The Nasdaq Stock Market Composite is composed of all the stocks on the Nasdaq market – more than 5,000.

Although broad in coverage, the Nasdaq is heavily weighted to technology stocks. This is because it is a market cap weighted index and stocks like Microsoft and some of the other big technology companies influence the index.

Their influence and the population of small, speculative companies in the Nasdaq make the index more volatile than either the Dow or the S&P 500.

The Nasdaq obviously is not designed to represent “the market,” however it does give you a good idea of where technology investors are going.

Other Indexes

There are a number of other indexes that measure larger or smaller sections of the market. Mutual fund investors can find a number of funds that track almost any index they want.

However, the major three indexes above will serve most investors well. Should you want to look at other indexes for comparison, make sure you understand how the index is weighted (most, if not all will be market cap) and how stocks are selected.

What’s Good about Indexes

Indexes provide useful information including:

• Even with their limitations, indexes show trends and changes in investing patterns.
• They give us snapshots, even if they are out of focus.
• Indexes provide a yardstick for comparison.

What’s Wrong with Indexes

Indexes, by design, have major flaws that make them suspect as truly representative of much of anything.

• People decide which stocks to include and which to remove and people make mistakes. So, sometimes stocks are included that shouldn’t be and stocks are removed that shouldn’t be; and so on.

  In addition, this process repeats year after year, so it is hard to look back and compare the S&P 500 of 1995 with the S&P 500 of 2004.

• By weighting the indexes (except for the Dow) by size, disproportion representation goes to large or giant companies. If one of them has a bad day, it can shake the whole index.

What Should we do with Indexes?

There are a few things investors need to remember about the indexes:

• Indexes are not the market. No matter what the big three indexes say, you should stay focused on your stocks or targets for evaluation. Pick any day that all three indexes are down and I can almost guarantee that there will be stocks setting new highs the same day.
• Indexes react to actual trades. If you listen to some of the TV talking heads, you might think the indexes move on emotion.

  Investors may trade on the expectation of good or bad news, but indexes are mathematical calculations, not tea leaves.

• Focusing on day by day, hour by hour, minute by minute clicks of an index is a good way to waste time.
• Indexes provide a better historical perspective than forecasting service. They can be especially helpful when viewed over a long period in spotting trends.

One of the ways investors classify stocks is by type of business. The idea is to put companies in similar industries together for comparison purposes. Most analysts and financial media call these groupings “sectors” and you will often read or hear about how certain sector stocks are doing.

One of the most common classification breaks the market into 11 different sectors. Investors consider two of there sectors “defensive” and the remaining nine “cyclical.” Let’s look at these two categories and see what they mean for the individual investor.

Defensive

Defensive stocks include utilities and consumer staples. These companies usually don’t suffer as much in a market downturn because people don’t stop using energy or eating. They provide a balance to portfolios and offer protection in a falling market.

However, for all their safety, defensive stocks usually fail to climb with a rising market for the opposite reasons they provide protection in a falling market: people don’t use significantly more energy or eat more food.

Defensive stocks do exactly what their name implies, assuming they are well run companies. They give you a cushion for a soft landing in a falling market.

Cyclical stocks

Cyclical stocks, on the other hand, cover everything else and tend to react to a variety of market conditions that can send them up or down, however when one sector is going up another may be going down.

Here is a list of the nine sectors considered cyclical:

• Basic Materials
• Capital Goods
• Communications
• Consumer Cyclical
• Energy
• Financial
• Health Care
• Technology
• Transportation

Most of these sectors are self-explanatory. They all involve businesses you can readily identify. Investors call them cyclical because they tend to move up and down in relation to businesses cycles or other influences.

Basic materials, for example, include those items used in making other goods – lumber, for instance. When the housing market is active, the stock of lumber companies will tend to rise. However, high interest rates might put a damper on home building and reduce the demand for lumber.

How to Use

Stocks sectors are helpful sorting and comparison tools. Don’t get hung up on using just one organization’s set of sectors, though. MS uses slightly different sectors in its tools, which let you compare stocks within a sector.

This is extremely helpful, since one of the ways to use sector information is to compare how your stock or a stock you may want to buy, is doing relative to other companies in the same sector.

If all the other stocks are up 11% and your stock is down 8%, you need to find out why. Likewise, if the numbers are reversed, you need to know why your stock is doing so much better than others in the same sector – maybe its business model has changed and it shouldn’t be in that sector any longer.

Conclusion

You never want to be making investment decisions in a vacuum. Using sector information, you can see how a stock is doing relative to its peers and that will help you understand whether you have a potential winner or loser.

The first step for you to understand the stock market is to understand stocks.

A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

You have the right to vote on members of the board of directors and other important matters before the company. If the company distributes profits to shareholders, you will likely receive a proportionate share.

One of the unique features of stock ownership is the notion of limited liability. If the company loses a lawsuit and must pay a huge judgment, the worse that can happen is your stock becomes worthless. The creditors can’t come after your personal assets. That’s not necessarily true in private-held companies.

There are two types of stock:

• Common stock
• Preferred stock

Most of the stock held by individuals is common stock.

Common Stock

Common stock represents the majority of stock held by the public. It has voting rights, along with the right to share in dividends.

When you hear or read about “stocks” being up or down, it always refers to common stock.

Preferred Stock

Despite its name, preferred stock has fewer rights than common stock, except in one important area – dividends. Companies that issue preferred stocks usually pay consistent dividends and preferred stock has first call on dividends over common stock.

Investors buy preferred stock for its current income from dividends, so look for companies that make big profits to use preferred stock to return some of those profits via dividends.

Liquidity

Another benefit of common stocks is that they are highly liquid for the most part. Small and/or obscure companies may not trade frequently, but most of the larger companies trade daily creating an opportunity to buy or sell shares.

Thanks to the stock markets, you can buy or sell shares of most publicly traded companies almost any day the markets are open.

Dow	9,256.26	-24.71	-0.27%
Nasdaq	1,973.16	0.00	0.00%
S&P 500	997.08	0.00	0.00%
10 Yr Bond(%)	3.7460%	0.0000
Oil	71.67	-0.27	-0.38%
Gold	961.60	+0.90	+0.09%