Different Types Of Stocks

Different Types Of Stocks

It is already widely known that stock ownership is one of the most salient mediums for investment portfolios in existence.  However, what is less commonly known is that there are different types of stock and even different classes of stock.  Understanding what these different types and classes are and how they operate in the market can be significant for creating a successful path to prosperity through equity and growth.

Common Stock

This is the type of stock that most people discuss and trade on a regular basis.  These common shares of stock are akin to a piece of ownership in a company that places fiduciary decisions in the hands of a board of directors that are elected to such a position.  Stocks can potentially yield the most dividends by virtue of capital growth but they are also associated with the greatest volume of risk.

Preferred Stock

This type of stock typically indicates that a person who controls shares will receive partial ownership in a company but they may not have the ability to participate in on-going elections for a board of directors or other fiduciary decisions.  Additionally, preferred stocks guarantee a static dividend for the life of the investment.  It is also important to recognize that preferred shareholders will always receive payment for their investments upon liquidation before those people who hold common stocks.  Companies also hold the ability to purchase back the preferred shares from holders at any time they deem necessary or appropriate.  Not everyone has the same perspective on the benefits of preferred stock as some choose to suggest that it plays a role similar to debt than it does growth.

Classes of Stock

As previously mentioned, the two existing types of stocks are known as common stocks and preferred stocks.  However, it is also important to recognize and understand the purpose of the different classes of stocks that also exist.  Perhaps the largest reason for creating different classes of stocks is to ensure that there are different degrees of voting and administrative rights.  These second or sub-classifications are typically recognized as class A and class B stocks.  For example, a Berkshire-Hathaway stock may be classified on a stock ticker as ‘BRKa.’  These classifications and types of stocks are crucial to recognize and understand for the purposes of becoming a responsible shareholder.

Graph showing stocks.

Class A Stocks

The best way to describe this phenomenon is to think of a dichotomy with first class shares and second class shares.  Those who hold first class shares or ‘Class A’ shares may be issued a high yield of votes per share to contribute to a fiduciary decision-making situation.

Class B Stocks

Conversely, those people who hold second class shares may only be issued one vote to contribute to the process.  It is important to understand that the majority of investors would subsequently fall into the latter category of second class of shareholders.

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