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Stocks represent ownership in a company. Although it is difficult to predict how a stock will perform, it is useful to know financial history and future prospects as guides. The best advice is to diversify (spread money over an array of investments), ride out the ups and downs, invest in quality companies and keep buying and selling - trasaction costs - low. Most people buy stocks to make money through capital gains or the profit from selling stock at a higher price than when purchased.

Stockholders or shareholders all have equity in the company, or own a small fraction of the whole.

Common Stocks - Investors who buy them expect to earn dividends, which are portion of the company's profits paid out to shareholders. Common stocks offer no performance guarantees.Owners share in success when the company profits, but are at risk when the company falters.
Preferred Stocks - They differ from common stocks by reducing risk but limiting rewards. The amount of dividend is guaranteed and paid before dividends on common stock. Dividends do not increase if the company prospers.
Classification of Stock Investments

There are eight classifications for stock investment that are commonly used by investors, financial planners, and stockbrokers. They are:

1. Blue chip stocks—very safe investments that generally attract conservative investors. The term is borrowed from poker, where the blue chips are the most valuable. They refer to stocks of the largest, most consistently profitable corporations.
2. Income stocks—stocks that pay higher than average dividends, and pay those regularly.
3. Growth stocks—stocks issued by corporations that earn profits above the average profits of all the firms in the economy. They pay little or no dividend while reinvesting their profits.
4. Cyclical stocks—stocks that follow the business cycle of advances and declines in the economy. Airline and hotel stocks are typically cyclical: people cut back on vacations when the economy is down.
5. Defensive stocks—stocks that remain stable during declines in the economy.
6. Large-cap stocks—stocks issued by a large corporation that has a large amount of stock outstanding and a large amount of capitalization, usually in excess of $5 billion.
7. Small-cap stocks—stocks issued by a corporation that has a capitalization of $500 million or less.
8. Penny stocks—stocks that typically sell for less than $1 a share.

Reading the Stock Tables

Highest and lowest prices for the past 52 weeks are reported daily. The range between the prices reflect the stock's volatility.
Per cent yield tells you the dividend as a percentage of the current price. The yield on Crysler is 1.4%.
Cash dividends per share is an estimate of the anticipated yearly dividend per share in dollars. Crysler yearly dividend is $.60 per share, so for 100 shares one would receive $60 in dividend payments, probably in quarterly payments of $15.00
Price/Earnings Ration (P/E) is the relationship between a stock price and the company's earnings for the past four quarters. Divide the current price per share by the earnings per share. A P/E ratio of 8 means its price is 8 times its annual per share earnings on average. It is not foolproof, because it reports past earnings and not future potential. There is no perfect P/E ratio, although some investors avoid stocks if they think the ratio is "too high."
Volume refers to the number of shares traded in the previous day. Unless a "z" appears before the number, multiply the number by 100 (in this case, 12256 would be 1,225,600 shares traded)
High, Low and close reports the stock's highest, lowest and closing price for the previous day.
Net Change compares the closing price in the chart with the previous closing price. Here Crysler closed at 43 1/4, down 1/8 from the day before. Prices that change 5% or more are in boldface.

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©2004 by Kaya Ford
Last Revised on April 6, 2005