Investing in common stocks

Common stocks are commonly traded financial instruments. The dividend from such instruments can be variable. The prices can increase or decline depending on company’s business, reputation, profits, market conditions and a number of other economic factors. Traders need to examine the various features of the company, its business structure and opportunities to identify the best ones.  Some buy preferred stocks, which are mostly compared to bonds and can provide fixed income. Also, the price of such stocks is less volatile as compared to shares but these may not gain as expected. Companies, sometimes, provide stocks as Class A or Class B stocks, which have different voting rights.

Grouping stocks

Trading stocks made Warren Buffet, the richest man, the ‘Oracle of Omaha’, and his tips in investment are most valuable. He is one of the most successful stock traders who started investing from the age of 11 and by the age of 16, he made $53,000. He spends most of his time reading and has been living in the same house since 1958. Most of his wealth came when he reached 60 and he pledged to give away the earnings to charities. He has donated $32 billion till now. Most trading companies and banks check his advises to invest.

His success show one can earn through long-term consistent investments. Trader should try to diversify the portfolio into various categories and include stocks from various growing business sectors. Companies can be divided depending on the size of business. The stocks of a local company, or a multinational, or a government company fluctuate in different ways at stock exchanges.

The market cap

Large cap market value can be more than $10 billion, a mid cap can be in the range of $2 billion to $10 billion, and a small cap can be in the range of $300 million and $2 billion. There are other categories such as mega-cap and micro-cap where the market cap depicts the risk and growth opportunities.

Sector

Sector can be used to divide companies. Some of the sectors are telecommunication, consumer / retail, energy, finance, health care, manufacturing etc.

Markets

Stocks can be grouped based on business in various geographical locations. One can diversify by selecting companies from different markets such as emerging markets. The companies that are new and growing in a specific field having a positive market response are expected to perform well. Those having long-term business strategies and stable management may deliver positive returns.

Investor who is not aware of the business strategies, management strategies or other factors can invest in mutual funds, which provides diversified investment and allows the investor to purchase a number of stocks with one fund share.

Professionals are hired by the mutual fund companies to choose the best strategies of investment. The selection of stocks in the mutual fund should be appropriate; otherwise, the fund will not be able to give desired growth, while, a stock can, sometime, offer great returns in a short duration.    

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