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Introduction |
| invest2
.
to commit (money) in order to earn a
financial return
source: Merriam
Webster. s Collegiate Dictionary
If
you have read our novice section then you
have some background knowledge about
investing. Now is the time to go more
in-depth about investing and everything that
goes with it. We will be showing you how to
make your money bloom into an impressive
flower of unmatchable beauty. You will learn
how to make money by owning various assets. |
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What
are stocks? |
| Stocks simply
represent a
part ownership in a company. The amount
of shares that you hold with respect to
the amount outstanding determines the percent that you
own. For example, if a company has 200,000
shared and you currently hold 100 shares then
you own 1/2000 of the company. I know you are
saying that, this is all good but where does
my money come from? The way that you make
money is when the stock price goes up. This
happens when the company that you invested
in does well.
When thinking about investing, the stock
market is a choice that should be considered
very carefully. Playing the stock market is
a high risk venture that can cause you to
lose your money. However, since it is such a
high risk there is also a possibility that
you will make a profit. The profit that you
would make would be much greater than if you
invested in bonds. |
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Blue
Chip Stocks |
| The
Blue Chip companies are large, established
companies that have done well in the past
and that will probably do well in the
future. These companies are generally leaders
in their fields. They have the capability to
set the standards for other companies in
their field. Some well known Blue Chip
companies are Coca-Cola, GE, and McDonald.
s. The Blue Chip Stocks make up
approximately 1/5th of the total
market value of all the US stocks. |
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Penny
Stocks (or Designated Securities) |
| Penny
stocks are low-priced stocks that are very
risky. They are usually issued by companies
with a short history of earnings. Since they
are low in price many exchanges choose not
to trade them. They sell for less than $5 a
share and the companies that issue them have
2 million dollars or less in net tangible
assets. Usually these stocks are not good to
invest in, however when they catch a good
wind their price can rapidly grow. |
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Income
Stocks |
| These
stocks are known for paying high dividends,
often suggesting to investors to keep their
money invested in it. The companies that
tend to pay these large dividends are
established and stable. Some classifications
of this stock are utilities and telephone
companies. This stock is good for those
investors who have the time to wait for
growth and want a steady income. |
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Value
Stocks |
| A
value stock is a stock that belongs to a
company that has good earnings but whose
stock prices do not seem to reflect the
companies true value. The investors that put
their money into stocks like these are
expecting to see a large growth in the
company in a short period of time. S
ome
companies alternate between value and
growth. |
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Growth
Stocks |
| This
label is usually applied to a stock that has
a chance of growing faster than the general
stock market. Investors buy growth stocks
for the same reason they buy value stocks,
they expect a sudden increase in the stock's
value. |
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Defensive
Stocks |
| These
are stocks whose prices are generally
stable, a good quality during recessions.
Food and utilities are defensive stocks. |
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Cyclical
Stocks |
| Stocks
in this category move up or down in
accordance with the business cycle. They do
well during a strong economy but tend to
sink during a recession. |
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What
does all this cap stuff mean? |
| First of all
"Cap" is short for capitalization, which
is the value of a stock. The
Cap gives an investor the picture of a
stock. s size. You can find the cap of a
stock by multiplying its market price by the
number of its shares outstanding. "Outstanding?"&
well that means
in the hand of the public. Here is an
example of what I mean, say that a stock has
a price of $10 and has 2,000,000 shares
outstanding, then that stock has a Cap of
$20,000,000. There are three classes of
Caps, small, mid, and large. The small is
classified as a company that has a Cap value
of less than $500,000,000. A large cap has a
value of over $3 billion dollars. A mid cap
is between the two, $500 million and $3
billion. |
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Small-Cap
Stocks |
| Companies
that are usually classified as Small-Cap are
small companies that have the potential to
grow rapidly. They are very unpredictable in
behavior. They tend to either grow or
decline very rapidly, doing one just as soon
as it does the other. These stocks are
oriented toward growth, a quality that is
looked for by growth mutual funds to add to
their portfolio. This is a good investment
for investors who are not currently looking
for dividends and can stand volatility. |
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Mid-Cap
Stocks |
| These
are typically the stocks of mid-sized
companies. They are stable but offer growth.
Baby Blue Chip Stocks are mid-cap stocks
with a good past and what looks to be a
promising future. Mid-Cap stocks thrive on
growth however a large portion of their
earnings are paid as dividends. |
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Large-Cap
Stocks |
|
These are stocks of well known companies such
as IBM or GE. These are companies that
have established themselves in the
business world. The large cap stocks make up over 1/2
of the value of American stock. These stocks
do not promise as much growth as small or
mid-cap stocks however they tend to pay
larger dividends. |
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