Stocks 101 What is a Stock Stocks are

Stocks 101

What is a Stock? • Stocks are also called shares or equity. • As a shareholder you: • become part owner of a corporation. • are typically awarded voting rights at the company’s annual meeting. • have a claim on part of the company’s assets and earnings.

True or False? 1. Companies issue shares in order to raise money. Answer: True. Companies issue stock in an IPO (Initial Public Offering) in order to raise money. They can raise money in other ways (bank loans, bonds – but these are called debt).

True or False? 2. Shareholders can tell the company what types of products they should sell? Answer: False – management decisions are made by the company’s managers and directors. Individual shareholders may make suggestions to a corporation just like regular people do.

True or False? 3. As a shareholder, you will receive dividends every year. Answer: False – as a shareholder, you MIGHT receive dividends, but it is up to the company as to whether they choose to issue dividends in any given year. Investors should not EXPECT that this will ALWAYS occur.

True or False? 4. Shareholders are responsible for a corporation’s debts if the corporation goes bankrupt? Answer: False. The corporation is a legal entity that is separate from its shareholders.

Preferred vs. Common Shares • There are two different types of shares available. • When people talk about “stocks”, they most often mean common stock. • Each type of share has different rights & entitlements

Common Shares (Stock) • Have voting rights at the company’s annual shareholder’s meeting. • Are entitled to receive dividends should the company choose to issue any. • Have a claim on the company’s assets, but in case of bankruptcy, they get paid out last. • Prices of common stock can vary greatly, they are considered more risky than preferred stock.

Preferred Shares • Are not typically entitled to voting rights at the company’s annual shareholders’ meeting. • Usually receive a set dividend, much like a bond. (some people consider them a hybrid investment – a mix of bond/stock, but they are shares) • Have the first claim on a company’s assets before common shareholders. • Are generally considered less risky than common shares because of the set dividend.

A Video • Stock Market Rap

Some Basic Calculations You buy 20 shares of a company at $10. 00 per share and sell all 20 shares a year later for $14. 00 per share. 1. What is your total cost? 2. How much profit did you make? 3. What is your profit as a percent of your investment? 4. By what percent did your investment grow?

Answers: 1. $200 2. $280 - $200 = $80 profit 3. 40% 4. 140%