A Beginner's Guide to Ocommon Stock Penny Stock Preferred Blue Chip Investing

Ocommon stock, penny stock, and blue chip investing can seem like a daunting world for beginners.

Common stock represents ownership in a company and can be a good investment option for those looking to diversify their portfolio.

Penny stocks are low-cost stocks that trade for under $1 per share, often with higher risk and potential for higher returns.

Blue chip stocks are considered to be high-quality, established companies with a strong track record of success.

Investing in blue chips can provide a sense of security and stability, but may not offer the same potential for high returns as penny stocks.

Stocks and shares are often used interchangeably to describe a fraction of ownership in a company, but shares is a more technical term that describes the smallest possible denomination of a company's stock.

The stock market is an exchange or venue where shares of public companies can be bought and sold, typically after an initial public offering (IPO) in the primary market. This allows existing shareholders to sell their shares to new investors in the secondary market.

To buy shares, you can choose between a limit order, which allows you to specify the price at which you wish to buy, or a market order, which buys at the current best price.

A stock market is an exchange or venue where shares of public companies can be bought and sold.

To be listed on a stock market, a company typically starts by issuing shares through an initial public offering, or IPO, in the primary market.

Shares of a given company are available for purchase or sale on the stock market after the IPO, and you buy from existing shareholders, not from the company itself, in the secondary market.

Stock exchanges are now largely electronic venues, a far cry from the hectic physical markets of the past.

Each stock has its own order book, an electronic list of buy and sell orders for that specific stock, with bids representing orders to buy and offers representing orders to sell.

For a trade to execute, a buyer and a seller must match each other in price, and the order book provides real-time visibility of the amount of stock available to buy and sell at various prices.

If there's a lot of demand for a stock, the bid side of the order book will grow quickly, and the price will move higher, whereas if there's more supply, the offer side will grow more quickly, and the price will move lower.

As a buyer, you have two main choices: you can specify a price at which you want to buy and become part of the order book bids with a limit order, or you can buy at the current best price with a market order.

Extended hours trading refers to any trading conducted by electronic networks that takes place either before or after the regular trading hours of the listing exchange.

The London Stock Exchange (LSE) is an example of an exchange that offers extended hours trading, with a pre-trading session from 5:05 am to 7:50 am and a post-trading session from 4:40 pm to 5:15 pm.

Most brokers require traders and investors to limit orders during extended hours, which can be a good thing if you want to react quickly to market events.

An initial public offering, or IPO, is a way for companies to raise capital by selling shares to the public for the first time.

Companies resort to an IPO as a way to raise capital to expand their business because it gives the company better access to capital.

Going public is also a way to increase liquidity for the company's stock, which can satisfy early investors. This can include venture capitalists, private equity, or the founders of the company.

IPO stocks are stocks of companies that have recently gone public through an initial public offering (IPO). They often generate a lot of excitement among investors looking to get in on the ground floor of a promising business concept.

IPO stocks can be volatile, especially when there's disagreement within the investment community about their prospects for growth and profit.

IPO stocks typically get allocated at a discount before the company's stock lists on the stock exchange.

Dividends are a powerful motivator for some investors, and they can build up a passive income, provided the company does not slash your dividend payout.

Dividend stocks are another name for income stocks, which are ideal for conservative investors who need to draw cash from their investment portfolios right now.

You can build up a passive income by buying dividend stocks, and the more shares you own, the more the company will pay you when dividend time arrives.

Dividend stocks are shares of companies that have more mature business models and have relatively fewer long-term opportunities for growth.

The possibility of dividends is a great benefit of investing in stocks, and it can help you stay ahead of inflation, which erodes the value of cash over time.

Inflation erodes the value of cash, and with inflation reaching 8.4% in March 2022, it may be wise to buy assets that can stay ahead of this, like stocks that offer superior returns.

Companies listing on the market is a crucial step for businesses looking to raise capital and expand their operations. Companies resort to an initial public offering (IPO) as a way to raise capital to expand their business, giving the company better access to capital.

An IPO allows companies to get more brand recognition from a broader public, attracting both more customers and potential employees. If early investors in the company are seeking liquidity, going public is also a way to increase liquidity for the company's stock, which can satisfy those early investors.

Companies can list on various stock exchanges, but the markets where people buy and sell stock come in several different flavors. There's no precise line that separates large-cap, mid-cap, and small-cap stocks from each other, but one often-used rule is that stocks with market capitalizations of $10 billion or more are treated as large-caps.

Stocks with market caps between $2 billion and $10 billion qualify as mid-caps, and stocks with market caps less than $2 billion are treated as small-cap stocks. Large-cap stocks are generally considered safer and more conservative as investments, while mid-caps and small-caps have a greater capacity for future growth but are riskier.

Investing in stocks can be a great way to grow your wealth over time, but it's essential to understand the basics first. A stock market is an exchange or venue where shares of public companies can be bought and sold. To be listed on a stock market, a company typically begins by issuing shares through an initial public offering (IPO).

Before investing in stocks, it's crucial to consider your time horizon, which is the amount of time you have to wait before needing the money. This will help you determine your risk tolerance, which is how comfortable you are with the possibility of losing some or all of your investment. If you have a long time horizon, you may feel more comfortable with risk.

When buying stocks, you can choose between a limit order and a market order. A limit order allows you to specify the price at which you want to buy the stock, while a market order buys the stock at the current best price. This is a good time to consider diversifying your portfolio by buying stocks from many different companies and sectors.

In contrast to other assets, stocks can be easily bought and sold, making them a great option for new investors. The possibility of dividends is also a powerful motivator for some investors, as it can provide a passive income. However, it's essential to remember that inflation can erode the value of cash, making it wise to invest in assets that can stay ahead of inflation.

Most people invest in common stock, which represents partial ownership in a company and gives shareholders voting rights and the potential for unlimited upside.

Common stock can be issued with multiple classes, such as Alphabet's A, B, and C shares, which have different voting rights.

Preferred stock, on the other hand, typically doesn't carry voting rights and has a lower valuation, but it usually receives a higher dividend payment and has priority over common stockholders in case of bankruptcy.

Preferred stock often resembles a fixed-income bond investment, with a guaranteed return of a certain amount of money if the company dissolves.

Stocks and shares are often used interchangeably, but there's a subtle difference between them.

Stocks usually refer to common stock, which is a fraction of ownership in a company that can be purchased. By buying common stock, you can gain voting rights and a potential right to profits through dividends.

The term shares is more technical and describes the smallest possible denomination of a company's stock. You purchase a specific number of shares to own stock in a company.

Equities refer to the total ownership you have in a company. If a company has 1,000 shares and you own 100 of them, you have a 10% equity stake.

Common stock is the most common type of stock available to investors, representing partial ownership in a company with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved.

With common stock, you get a share in the ownership of the corporation along with voting rights, but dividends are not guaranteed.

Common stock can be volatile because the stock represents the company's performance, making it riskier than bonds and preferred stock.

In the case of poor company performance or bankruptcy, common shareholders are last in line to receive a share in company assets.

Common stock is usually better for long-term returns and growth than other types of investments, but it's essential to remember that it can be volatile and riskier than bonds and preferred stock.

Common stock gives shareholders theoretically unlimited upside potential, but they also risk losing everything if the company fails without having any assets left over.

As a result, common stock should be part of a diversified investment portfolio to minimize risk.

Common stock is often what shareholders want to buy, and it's the most common type of stock available to investors.

Preferred stock doesn't come with voting rights, which is a key difference from common stock.

Preferred stockholders are entitled to regular dividend payments before common shareholders, and they also get repaid first if the company dissolves or enters bankruptcy.

This means that preferred stockholders are more likely to recover at least part of their investment if a company declares bankruptcy, compared to common stockholders.

Preferred stock usually comes with fixed dividends, which can provide a reliable source of income for investors.

In the event of bankruptcy, preferred stockholders rank higher than common stockholders, making them a lower-risk investment option.

Many companies offer both common and preferred stock, and Alphabet Inc. is one example of a company that lists both common and preferred stock classes.

Preferred stock typically receives a lower valuation due to the lack of voting rights, but it often offers higher dividend payments compared to common stock.

Penny stocks are low-quality companies whose stock prices are extremely inexpensive, typically less than $1 per share.

Investors should consider using limit orders when placing buy and sell orders in penny stock, as they often have a large spread between the bid and ask price.

A penny stock is equity valued at less than $5 and is considered highly speculative.

Most penny stocks are traded over the counter through the OTC Bulletin Board (OTCBB), which makes them difficult to sell because there may not be any ready buyers or a price that accurately represents the market.

Penny stocks tend to lack liquidity or ready buyers, which can be a major concern for investors.

Cyclical stocks are directly affected by the economy's performance and typically follow economic cycles of expansion, peak, recession, and recovery.

They usually display more volatility and outperform other stocks in times of economic strength when consumers have more discretionary income. Examples of cyclical stocks include iPhone maker Apple Inc. and sports gear giant Nike, Inc.

Non-cyclical stocks, on the other hand, operate in "recession-proof" industries that tend to perform reasonably well irrespective of the economy.

Non-cyclical stocks usually outperform cyclical stocks in an economic slowdown or downturn as demand for core products and services remains relatively consistent. The Vanguard Consumer Staples ETF provides exposure to large-cap defensive stocks.

Grocery store chains are an example of non-cyclical stocks because no matter how good or bad the economy is, people still have to eat.

Investors can add cyclical stocks to their portfolios by purchasing the Vanguard Consumer Discretionary ETF.

Investing in stocks requires a solid understanding of risk tolerance and time horizon. You should consider how comfortable you are with losing the money you've set aside to invest, and whether you have a long-term or short-term goal in mind.

Diversification is key to reducing overall risk, and it's best to buy stocks from many different companies and sectors rather than relying on a single stock. This way, you can spread your investments across various asset classes, which tend to perform differently.

It's impossible to time the market, so it's best to start investing now rather than waiting for the perfect day. Always read up on the company you're considering investing in and stay curious about the market.

Growth stocks are expected to grow at a significant rate above the market average, often with innovative companies and unique products. Growth investors tend to look for companies with strong and rising demand, especially in connection with longer-term trends.

Growth stocks can be incredibly risky, relying on selling the stock at a higher price than they paid to make a profit. If the company fails, the investor will suffer a loss.

Growth stocks tend to outperform during times of economic expansion and when interest rates are low. For instance, technology stocks have significantly outperformed in recent years, fueled by a robust economy and access to cheap funding.

Growth stocks usually don’t pay dividends, instead reinvesting the money for short-term growth acceleration. This can make them more attractive to investors seeking higher returns.

Value stocks, on the other hand, are seen as being more conservative investments. They're often mature, well-known companies that have already grown into industry leaders and don't have as much room left to expand further.

Value stocks are typically characterized by high dividend yields, a low price-to-book ratio, and a low price-to-earnings ratio. They often sell for a low price compared with their fundamentals.

Value stocks can be risky because to make a profit, the market must change its view on the company. However, compared with growth stocks, value stocks tend to have a higher long-term return.

Here's a comparison of growth and value stocks:

By understanding the differences between growth and value stocks, investors can make more informed decisions about their investment strategies.

Investing in the stock market can be a thrilling experience, but it's essential to understand the different types of stocks and how they perform in various market conditions.

Cyclical stocks are directly affected by the economy's performance and typically follow economic cycles of expansion, peak, recession, and recovery. They usually display more volatility and outperform other stocks in times of economic strength when consumers have more discretionary income.

Investors can add cyclical stocks to their portfolios by purchasing the Vanguard Consumer Discretionary ETF (VCR), which includes companies like iPhone maker Apple Inc. and sports gear giant Nike, Inc.

Non-cyclical stocks, on the other hand, operate in "recession-proof" industries that tend to perform reasonably well irrespective of the economy. They usually outperform cyclical stocks in an economic slowdown or downturn as demand for core products and services remains relatively consistent.

Examples of non-cyclical stocks include grocery store chains and companies that sell essential products and services, such as consumer staples, healthcare, and utilities.

Defensive stocks may help protect a portfolio from steep losses during a sell-off or bear market. These companies typically sell essential products and services, such as consumer staples, healthcare, and utilities.

Investing in defensive stocks can be a good safety net in a market downturn or recession, as they provide constant and stable earnings. Companies like Verizon and healthcare multinational Cardinal Health, Inc. are among the defensive stocks included in the core holdings of the Invesco Defensive Equity ETF (DEF).

Non-cyclical stocks tend to perform better during market downturns, while cyclical stocks often outperform during strong bull markets.

Leverage is a powerful tool in the world of investments, and it's often overlooked by beginners.

By using borrowed money, you can amplify your returns, but be aware that leverage can also amplify losses.

In the article, we discussed how margin accounts can be used to leverage your investments, but it's essential to understand the risks involved.

The article also mentioned that a 3:1 or 4:1 leverage ratio is common in margin accounts, meaning you can borrow up to three or four times the amount of your initial investment.

As discussed earlier, the key to successful leverage is to have a solid understanding of the market and the underlying assets.

It's crucial to set a stop-loss order to limit potential losses, and to monitor your investments closely to avoid margin calls.

In the article, we saw an example of how a 2:1 leverage ratio can lead to significant gains, but also highlighted the importance of managing risk.

A stock split is processed by a corporate action event where the ratio is one of the most relevant details.

It's usually seen when stocks trade at excessive prices that are deemed unattractive to retail investors.

If a company does a 3:1 stock split, every shareholder would receive three shares in place of every one they held.

This means the number of outstanding shares increases, while the price per share decreases.