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Types of Stocks
Common stock
Common stock is the most popular type of stock. When someone mentions a stock it is assumed they are talking about a common stock.Preferred stock
Preferred stock is very different than common stock in many ways. First, the dividends are fixed and stated as a percent of the stock price for preferred stock as opposed to variable with common stock. The dividends are also often cumulative for cumulative preferred stock, which means if they don't get paid for some reason then they accumulate until the next year. Unlike bonds though, companies are not legally obligated to pay dividends. Another difference is that preferred stockholders also have a claim on liquidation proceeds but they come before common stockholders.There is also such a thing as convertible preferred stock that means the preferred stock comes with the option of converting the shares into commons stock at a prescribed price. Investors are best if they leave these types of stock alone.
The thing a beginner needs to know about preferred stock is that they are more like a bond than a stock. They offer fixed income with little capital appreciation - just like a bond. Some people even say that preferred stock combines the worst of stock and bonds.
Classes of stock
Companies often issue different classes of their stock. The different classes may have different varying voting rights, dividends, or other characteristics. This is very common with preferred stock. Often, if you look at a large company's preferred stock listing they will have a "Series A", "Series B", etc.Common stock also sometimes comes in different classes. Many times the reason for different classes of common stock is to create a class of common stock that has less voting rights than another class while still having access to capital. For example, there may be a Class B shares that only have 1/10th of the voting power per share than the class A shares, which management owns.
The ticker symbols for the different classes of common stock are typically separated by a period. Viacom is an example of a famous company that has different classes of common stock. The most popular version that investors buy is the Class B shares which are quoted under the ticker symbol "via.b".
Berkshire Hathaway is another example of a famous company with multiple classes of common stock. The reason they chose to have multiple classes was because they decided to never split their stock. Because of this the price of 1 share of their stock now costs $112,000 to buy (as of August 2007). They then created a second class of stock that would be affordable to the average investor. These Class B shares have a value of 1/30th of the original shares (now Class A) and 1/200th of the per-share voting rights. The tickers for the different classes of Berkshire Hathaway stock are "brk.a" and "brk.b"..
My Opinion
Because preferred stock has much higher yields than common stock you'll see some investors scanning the preferred stock listings looking for very high-yielding stocks. But these "yield chasers" don't realize that preferred stock is sometimes "callable". In other words, companies have the right to buy it back if they want to. The higher the yield goes, the more sense it makes to buy it back. So if someone is planning to invest in high-yield preferred stocks as their long-term investing strategy then they should do some comprehensive learning as to how preferred stocks work.Stocks
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