The first thing to understand, before making stock picks in New Jersey, is that stock in a company is sold in a unit, which is called a share. The share is considered a unit of ownership; if you purchase a share of a company, then you are buying a part of the company. However, when you purchase more than one share, these are called stocks. In the stock market, the terms stock and share mean the same thing.
There are two types of stocks (or shares) available: preferred stock and common stock.
Common stock is a share of the ownership in a company. Most stocks are common stock and this type of stock is traded on stock exchanges. Whenever a broker, analyst or investor is talking about stock, they are referring to common stock.
Common stocks entitle the shareholder (the person who purchases the stock) to have voting rights. In most cases, this means one vote per stock, and also allows them dividends. Dividends are not guaranteed.
There are big risks associated with common stock because there is no guarantee the shareholder will make any money on their investment. People that purchase common stuck must hope that the prices of the shares goes up, which is how they make a profit.
If a company that you own common stock in goes bankrupt, you would only see money after the bondholders, creditors and preferred stockholders are paid. In many cases, there is no money left.
Preferred stock is very similar to common stock, in that you share ownership of the company and it can still hold a big risk to the investor. However, voting rights are usually different with preferred stock. Most preferred stock doesn’t come with voting rights and is considered by many to be a debt instead of equity.
Generally, companies issue preferred stock when they need funds. These stocks are usually sold to big investors or financial institutions that have thousands of dollars at their disposal.
There is a big advantage to buying a preferred stock: the preferred stockholder is guaranteed to receive a dividend as long as they own the preferred stock. Whether or not the company makes money, you will receive a dividend.
Knowing the difference between common and preferred stock can help with your stock picks in New Jersey.
Using an online broker such as Worlds Best Stock Picks can help you with stock picks in New Jersey; however, understanding stocks can also help you.