Stocks are certificates of ownership or shares issued by a company to its investors for the money they have invested. Each stock certificate represents a claim on a company’s assets and profits that the investor is entitled to. The strength of the investor’s claim is directly related to the overall value of his investment, the quantity of his shares and the company’s assets and profits.
When you buy a set of stocks, you buy a partial ownership in the company. The stock certificate you receive is proof of your ownership and entitles you to certain rights, responsibilities and privileges. In the investment world, brokers often refer to stocks as “equities” so when you hear that phrase, remember the person is talking about stocks.
Blue Chip Stocks
These are often thought of as premium stocks because blue chips are normally companies with long track records of steady profits and solid leadership. Examples of blue chips include companies such as AT&T, BellSouth, IBM, Coca-Cola, Frito-Lay, UPS and Xerox. Companies that represent the strength of the strongest American companies are known as “blue chips”. These are stocks that are bought for young children to help them later as they mature, and they are bought by retirees for their stability.
Value stocks are generally known to be solid for investment, but they have had some sort of corporate incident that has tarnished their image. Corporate scandal or market idiosyncrasies can create an unfavorable public image, but value stocks are considered good investments because they are under priced in relation to their earnings. They are considered a wise investment because they offer the potential for high gains over the long haul.
A growth stock is usually issued by a new and up-and-coming company that has solid growth and potential, but is still relatively new in the marketplace. The performance record is scant – usually because of the company’s relative youth – but the numbers are solid. A growth stock is one in which the company performs well, but simply has a short track record. Growth stocks are most agreeable to the portfolio of younger investors rather than to those nearing retirement because if the young company fails, the younger investor has more recovery time to offset the loss.