Stock Investment

- Shares of stocks invested in a particular corporation. These are shares of stocks of another
corporation.
- Its objective is to realize profit. The profit earned from stock investments are actually dividends.
When you buy a share of stocks, you are part owner of a corporation. One share of stock
represents unit of ownership. A share of stock is a unit of ownership in a corporation so that
stock investment is in effect in investment in a portion of equity in a corporation.

Classification of stocks:

1. Common Stock (Ordinary Stocks)

- It represents the basic ownership in a corporation. It carries with it the right to vote on
corporate matters. If you are holder of common stock, it gives you the privilege to vote during
the election of the board of directors. There are a lot of privilege if you own a common stock. As
to the distribution of dividends, your share is not fixed unlike in preferred stock wherein there is
affixed dividend rate. In common stock, if the earning of the corporation is big, then you will
have a big share.
2. Preferred Stock
- portion of owner’s equity that enjoys preference over common stock. You are being preferred.
When it comes to distribution of dividends, you will be given priority specially when the
corporation will become insolvent (bankrupt). It has fixed rate. Preferred stock is not really
attractive since it is fixed in a viewpoint of some investors. They would add sugar to that
particular features that can be availed in preferred stockholders. These features are:

a. Cumulative Stocks- accumulates dividends even if it is not paid for years. Even if the
corporation is not gaining any profit or returns, it is automatic that this will be added to the
profit for the next year.
b. Non-cumulative stock- understood that you will not gain any profit and return. If you will have
no return for this year, then don’t expect for next year. Non-cumulative shares are entitled to
dividends only if dividends are declared.
c. Participating stock- additional feature of participating of sharing with common stock in
additional dividend after the preferred stock has been accredited with its regular dividend. If
you have 8%, the you already got it. Aside from fixed dividend rate, the preferred shareholder
also has the privilege to participate in the distribution of the common shareholders.
d. Non-participating stock- In the case of non-participating, they cannot join in the distribution.
e. convertibility- preferred shares may be converted into common shares.
f. Callability- callable preferred stock are those may be bought back but the issuing corporation
at its option but at a stated called price. When it has called feature at a preferred stock, issuing
corporation can buy there. Why? The corporation issued shares but in callability feature, it can
be bought back in the corporation.

Other Classes of stocks:

It can be classified based on earning and raised potential. These are:
 1. Blue chips- in terms of earning and raise potential, blue chip is highly recommended. This
belongs to large companies which have the long record of earning and dividend payments.
When you have blue chip stocks, you will be in waste to sell these because the return is highly
dependable and the returns may be moderate but has low risk feature and very much
dependable.
2. Growth stocks- these belongs to corporation with growth rate, faster than that of that general
economy. Those company that is new to boom, their stock and market value increases together
with the economy. When our economy is progressive, then it will be with the value of growth
stock. The growth may be in terms of the revenue, income, and productive assets
3. Cyclical stocks- it is risky. Their earnings and prices moved with the changes in the national
economy. In economics, there are different phases of business cycles- the ups and downs. The
Up-stage, the phases in which there is progress we may identify this as the peak of the business
cycle. There is prosperity but we don’t expect business to always on top and big income. After
prosperity, it would go down. Precession Stage- the soul of business cycle is called recession. It
becomes too long; we experience a long time where business can’t get up or stand up with the
economy is called depression. After depression and in road to recovery, that is the phase of
wherein the business would go back to its normal is called Recovery Phase. It is the cyclical stock
feature in which the earnings and prices move with the changes with national economy or with
the accordance to the diff. phases of business cycle. It is understood if our economy experiences
economic depression, the value of stock is very low. If it prospers, the value stock is high.
4. Defensive stocks- the earnings are not affected so much with the changes of economy, even if it
has precession or depression, it still has a good income in theses companies. They belong to
corporation engaged with food and public utilities. Just like in typhoon, it has big impact with
the economy but not really in food industry. Vital utilities and public utilities like energy,
telecommunication, they are not essential so the demand continues.
5. Speculative stocks- they belong to companies that are not yet operating profitably but are
expected to do so in the future. There is potential to gain income but if it gains incomes, there is
a possibility that something will happen to the speculative stock either extreme or not. It if will
not gain bigger, then it will gain something; if it will not, then there is a big loss. Example, oil
industry, mining, etc. These are investment that are speculative.

In stock investment, it is really advisable to engage at an early stage as long as you have the
resources and interested. In any forms of investment, it begins with savings. Start with savings. Your
saving, earnings, the profit you make will eventually grow. Invest it further. In investing stocks, it is
always worthwhile advisable to listen to stock market analysis. It has to be monitored; you need to be
updated with the news. It entails research. If you want to buy stocks and you have no background with
economy, it is very risky. You have to listen to market analyst, political, economic, and corporate side.
There is stock market analyst who recommend when is the right time to buy stocks. Buy on rumor, sell
on news. The market today is volatile.

Tips on how to minimize risk in stock investment:

1. Do your homework and make research. You need to have time and effort.
2. Diversify stock investment. Do not put your X on one basket. Don’t stick to one stock company.
Spread investible funds. Involve other investment and company.
3. Buy at the point of most pessimism and sell at the point of most optimism. If there’s opportunity
to buy stocks, grab the opportunity. Have timing.
4. Avoid trading on margin. Don’t get debt.
5. Know when it is advisable to cut losses. (baligya if dili na halinon) If prices / stock values are
dropping, sell it.
6. Remain focus on long-term objectives. You need to have a good strategy on how to retain
investment on long period of time.