There are basically two types of stocks, preferred and common. Preferred stocks, and just as the name implies, these stocks are paid dividends before common stocks are paid, and should a company fail they are entitled to the company’s assets before common stock holders. Common stocks on the other hand are at the bottom of the pile for dividends and assets, so common stocks are not as good as preferred and preferred are not as good as bonds in regards to payment of assets should a company fail. When you hear people referring to buying stocks, they are usually referring to common stocks, which is the type of stocks that most investors purchase. As with all investments, risk and profit are counter balanced, that is to say preferred stocks are safer than common stock as they have a better probability of being able to recover value from asset forfeiture, than do common stocks. While common stocks are on the bottom of the pile and have to divide up the remains of assets if any. In stocks the higher the risk, the greater the return.
There are five kinds of stocks that you will consider based on your investment goals;
GROWTH STOCKS: Just as the name implies, these are stocks main objective is growth over time. A majority of small investors will invest in these stocks as they are one of the safest as the risk involved is small. These stocks usually perform well over a long period of time and may actually out perform the economy and the stock market itself.
INCOME STOCKS: These stocks will have a high rate of return, normally due to the fact that the company distributes a large portion of its income to shareholders in the form of dividends. However, since these stocks are based on a company’s profits can be affected by economic down turns that affect that company’s nitch in the economic sector. I view these stocks as a little riskier than growth stocks but still safer than the more aggressive types of stocks that will be discussed later.
BLUE CHIP STOCKS: They received their names from gambling, as the blue chips use to be the highest value chip. In the case of stocks it refers to companies that are the leaders in their industry or market sector. They are large companies that have been around for a longtime, have a proven track record, and are stable. These stocks generally are priced at the highest end of the cost spectrum for stocks and their stock prices do not normally have wide swings in its price. These stocks are reliable and usually pay dividends on a regular bases. However, in the current stock market we have seen these prices drop significantly, which is very rare, and possibly a good time to buy. Do not buy solely on the drop in price. You need to do some foot work and make sure that the company is still sound and will be able to resume its place in the market. Blue chip stocks are generally found in retirement portfolios and do well over time.
VALUE STOCKS: These stocks are ones that are under priced based on the company’s earnings. These types of stocks carry with them a high degree of risk. Many investors buy these stocks solely on the belief that the company will perform better in the future. The more speculative a stock is the higher the risk. Information on the company, their product, their economic nitch and their management can reduce the risk.
RECURRING STOCKS: These stocks generally follow the up and down swings in the economy, and generally do well in a growing economy. However, you must stay on top of information relating to the economy so you can make a well informed decision regarding these stocks.
Now you must sit down and decide what your investment objectives are, long term slow growth, income generating, long term safe growth with very limited risk, or high risk/high immediate returns. Normally all stock portfolios carry all five of these types of stocks. The percentage of anyone type of stock will show the overwhelming performance objective of the investor.
As with all investments you must always ask the most important question. Am I willing to lose my money, can I afford to lose it? Remember, stock investors are risk takers. They attempt to mitigate the risk as much as possible and do this thru research, judgment and common sense.
As a new investor you have already determined the amount of money you can lose. You have set down and made a calculated decision of your goals and expectations. Now what? Assuming that you are going to do this yourself, as opposed to hiring a broker, in one word research. Since your reading this on the computer you may begin on the internet, or you can do it the old fashion way, going to the library, researching by using old newspaper listings of stocks and doing a graph of that stock over the last several years or the last six months and then continue this process several months into the future. My guess is you will use the internet, is easier and faster. There are a lot of different tools that you will be confronted with, deciding which ones you want and need will be enough to drive the common person to inaction. Initially you want to view past performance of the stocks you are interested in. Order a prospectus from the company and review it carefully, checking out its balance sheet and its management. Next you will follow the stock, anywhere from several weeks to several months, depending on your level of comfort, and put it on a graph so you can visually see the stock’s performance. Until you become confident on your new ability and skills in researching and investing it is highly recommended that you begin with cheap stocks and invest moderately. Remember, your goal at this point is learning, not making money, but not losing it either. Monitor your result’s, find out what you did right and more importantly what you did wrong or what you failed to do. As you continue you will find that you are looking for more and more information and informational tools that you can utilize to conduct your research faster and more accurately, and don’t forget to keep up to date on current events as these could affect your stocks and stock decisions.
Most people will give up and go to a broker or a mutual fund, they either don’t want to spend the time and effort needed to do the research, or they have no confidence in themselves or their abilities. Those that I have talked with, that have succeeded in investing. Made a lot of mistakes and lost money at first. They continued to educate themselves, continued doing research, and continued learning and growing in their abilities. They all had a goal and had set up a system for their research and investing, and followed it every time. Most continued doing investing as a hobby, and did well for themselves. Several enjoyed it so much and learned to do it well enough to actually use it as a second job and made good money year in and year out.
THE CURRENT MARKET: With the current stock market drops and government intervention there have been a lot of losers and there have been winners. I don’t have a crystal ball and can’t see into the future, but I can research the past of the market in general,and specific companies’ and stocks in particular, and make a reasonable assumption. A general rule that I have always heard was, do the opposite of what everyone else is doing. This saying came about due to people and companies reacting out of emotion, usually fear and not on research. It’s like poker, every hand is a loser and every hand is a winner, it depends on how you play it.
As the current stock market has shown us, you can not always count on the markets going up, and going down. If you watch the market you are aware of the large mutual funds. They seem to always do good, why? A lot of them use expensive computer systems with automatic sale and buy features to monitor their accounts. The small investor, doesn't have that, until now. Even with limited computer know how, little or no experience in the stock market you can be successful. If a mutual fund manager took you by the hand and not only told you what to do, but showed you and allowed you to have access to his system, and was only a phone call or e-mail away, in case you had a problem or a question, could you be successful then? I found a company that does exactly that. Don't take my word for it, go to TRADING PRO SYSTEM, and learn to trade stocks and options. See for yourself if this is the opportunity you have been waiting for.
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