What effect do the types of shares have on your return?
There can also be a big difference between stock and stock. Knowing that there are types of shares will help you choose the optimal security for you as well.
The section on shares already talked about grouping. Then, among other things, these groups were discussed in more detail:
- ordinary share
- employee share
- preference share
- own shares
- interest – bearing share
- convertible bond
This info will be useful to you in two cases:
- if you meet them, know what they are
- if you are a stock issuer, it is absolutely necessary to know at least roughly what you are making a decision about
In all other cases, it is at most curiosity. After all, if you want to include a stock as an investment in your own portfolio, only the ordinary stock will remain in play. However, an earlier article on stocks also mentioned that there are differences between them as well.
Types of shares by size
Size grouping is determined by stock market capitalization. As long as, for example, you can write around the SME sector exactly according to either balance sheet profit or number of employees, there is no exact line above or below which a company would belong here or there.
Of course, where you list a company right now only describes the present moment. Of course, even a small company can outgrow itself and become specifically big. If you look, Amazon’s price hasn’t risen big by accident over the last 20 years.
What is capitalization?
The current value of a company. The total number of shares in the company multiplied by their current price. To put it roughly, you would need that much money at the moment to be able to buy all the shares. (Of course, it’s quite a dressing gown, after all, on the one hand, not everyone wants to sell right away, and on the other hand, your significant purchase in itself has a price-boosting effect. But I hope you understand the example.)
What characterizes the smallest of the types of stocks?
You can also meet them as small-cap stocks, they typically have a capitalization of less than $ 2 billion.
If you choose a small-cap stock, there is the potential for growth, but at the same time it is not legal, obviously there is a risk of bankruptcy or even a takeover by a larger company.
Looking at a short period, small firms show more volatility than large ones. Looking at a longer time horizon, however, there is a high probability that they will outperform the big ones.
Is it good to invest in small cap stocks?
Well, if you’re willing to wait until your small business grows, that is, keep your investment for years, you can go well with it. Provided you can handle the sometimes extremely disturbing feeling of high volatility on your own. It can be a good place for a properly selected smaller company in your portfolio, as this will allow you to turbocharge the overall growth rate of your portfolio. Of course, only if you can commit to a buy and hold investment strategy.
However, they are opposed to the fact that a smaller company is more likely to fail if the growth rate of the economy changes. Whether because of a recession or anything else. You can reduce this risk by analyzing companies very carefully or choosing an mutual fund that focuses specifically on those companies.
What characterizes the medium of the stock types?
You can also meet them as mid-cap stocks, they typically have a capitalization of between $ 2-10 billion.
Mid-caps are ranked between the two extremes (i.e., small and large) in both growth rate and volatility as they are at the midst of their development. That is why it is “just right” for those who want to get growth and thus profitability and at the same time some degree of security for their money. These companies are also suitable for those who want to diversify their portfolio.
These include firms that are still relatively young, growing rapidly, but have already outgrown their origins in low-capital firms. But it can also include more mature companies working in a stable, dynamically developing, profitable market sector.
Is the mid cap stock right for you?
If you want to keep the securities for at least 5 years and you still feel comfortable even if the exchange rate is volatile at times, it may have a place in your investment basket.
Regardless, you either do the “homework” yourself, i.e. research, before investing, or choose an investment fund (even an ETF) that focuses on that size.
What characterizes the large types of stocks?
You can also meet them as large-cap stocks, they typically have a capitalization of over $ 10 billion. This also includes Blue chip stocks.
Some of today’s large corporations were even classified into smaller sectors a few years ago, but have now outgrown themselves. Some of them have market opportunities that closely follow the current opportunities of the economy, hence their exchange rate is adjusted to this, but most of them are stable and able to pay higher dividends. These companies are less exciting for those who want to see big exchange rate gains. On the other hand, they produce profits predictably and reliably. Accordingly, their volatility is also less than what you can observe in younger firms.
Is the large-cap stock right for you?
If you want to hold the securities for at least 5 years and are looking for an asset that has lower volatility compared to other stocks, this is exactly the type of stock that is right for you.
You may need lower volatility if you:
- don’t want to take too much risk yourself
- already have a lot of assets with higher volatility in your basket and you want to strike a little balance.
While these companies are the ones everyone knows, it is useful to get to know them even better before you buy. That is, you perform the analysis either you or with the help of a specialist (eg with the help of a private banker, an actively managed investment fund or an ETF)
Types of shares by investment area
Domestic and international equities
At this point, the company’s headquarters are mostly considered, but this can be somewhat misleading if you’re wondering what events are affecting the company’s stock price.
It is not set in stone that sales can only be made in the country of establishment. Especially for a large, international company, it is almost impossible to tell exactly which geographical area it belongs to. You can’t even say that by reading through all of their financial metrics and the business report that comes out of it.
What is the risk of international equities?
While you can take advantage of the benefits available globally with it, you won’t have much insight into their operations, especially in emerging markets. And political instability in individual countries can easily cause significant impairment.
Before you choose this from the stock types, have a very clear strategy on what exactly you want.
Types of shares by growth potential
This type was mentioned in the article that also presented the shares to see that although they represent the same rights, the stock is not a dozen products.
Growth-focused firms typically have a higher level of risk, but accordingly, the return available can also be extremely attractive.
These are companies that are going through dynamic growth. On the one hand, because they are still relatively small, so there is room for them to grow, and on the other hand, because they serve a market demand for which there is widespread demand.
The risk inherent in them typically stems from the fact that not only they but also their competitors respond to this wide-ranging demand. Thus, there is a lot of competition, and if their competitors disrupt business, the exchange rate can fall quickly. Occasionally, even a slowdown in growth is enough for prices to fall. At this point, investors fear that long-term growth potential will decline.
Don’t expect too many dividends on shares of growth-focused companies. Even if you get any of them at all. After all, here you can benefit far more from an exchange rate increase than from a dividend that the general meeting might vote on. After all, it is the return on capital that gives them the impetus they need to grow.
How do you find exactly a growth stock among the stock types?
All you need to do is a few things:
- Look at current market trends, i.e., where the world is heading, and then look for companies that are best placed to serve that expected demand.
- Narrow down the list to those with a strong competitive advantage. Be able to determine as accurately as possible why you would buy their product and why you would stick with it.
- You can narrow down the list even further by looking at which of these companies have a relatively large but reachable consumer base.
This type was the other pair in the comparison in the stock section. Here, the focus is on value, of course, their own goodwill and with it exchange rate, as a small company will be great for giving value to the customer. Of the types of stocks, these are considered more conservative investments. After all, these are already well-known companies that have reached a mature stage of their development. They are often leaders in their industry, so they no longer have much room to grow. In return, demand for their products is stable and they have a reliable business model. If you choose this type, you will get more price stability while also getting the positives of stocks.
Value-focused firms can afford to pay even larger dividends. They can do it on the one hand because they can no longer grow too much so they don’t need extra reserves. And the maintenance of their liquidity is not jeopardized at all by the dividends paid.
On the other hand, since you can no longer expect further very dynamic exchange rate growth from them, they can meet the needs of their investors by paying dividends and at the same time keep their exchange rate stable.
Grouping of shares based on their market entry
The IPO shares were recently issued to the public. It could even be actually the first, and you’ve never gotten their shares anywhere before. But it could even be another listing. An example of this is the US IPO as a foreign exchange move for Chinese companies presented in the September 2021 investor’s overview.
Of course, IPO status is not limited to the one day it is issued. This status is maintained by the firm until investors can rely on some relevant statement (exchange rate, balance sheet numbers, etc.). Accordingly, you can usually talk about IPO status for at least 1 year, but even 2-4 years.
When a company first issues shares publicly, it creates a great deal of excitement among investors. They see the gateway to a promising business concept in this and want to join in the beginning, before growth.
Is it worth investing in an IPO?
The vast majority of these are still young companies, so the same applies to them as for those negotiated for small-cap stocks. So great growth potential, however, there is no guarantee that you will be able to grow itself.
Before investing in an IPO stock, read at least the following carefully:
- the financial results of the company
- market strategy
- the size of the stock market sector (i.e. the one in which it operates)
- the quality of management
- the company’s competitive advantage, if any
- as well as factors that may interfere with development
However, not all of the most carefully selected IPO stocks are a good investment. From the fact that their share price rises sharply after going public, they may still be fighting hard to stay in after the initial buzz. This can equalize in the long run as they typically perform below market in the short run.
Types of shares by cyclicality
The economy is cyclical. He gets up and then rearranges. According to stock market sectors, there are stocks that are more responsive to these, less affected by others. Before making a choice based on this, keep in mind that there is no 100% cyclical or defensive stock. The performance of a given company may vary depending on the circumstances.
Certain sectors are more exposed to the effects of economic cycles, these are called cyclical stocks. Firms operating in these industries are increasingly exposed to economic change. These sectors are more affected:
- travel (transport, accommodation, travel agencies, car rental, etc.)
- banks (lending)
- luxury goods
As the economy recovers, these companies will also recover, making their exchange rates more dynamic. However, as the economy slows down, they will lose markets faster than players in other sectors, so this will be reflected in their exchange rates.
Unlike cyclical stocks, defensive stocks are less exposed to changes in the economy.
This includes, for example:
- staple food manufacturers
- who are involved in the food trade because people have to eat even when the economy slows down.
Their rates typically perform well during a recession, as there is a demand for their products even when there is not so much demand for, for example, luxury goods or travel.
Types of shares according to stability
Blue chip shares
The blue chip is the most valuable in poker, after which these shares also got their name.
These companies are the creams of their industry, holding the shares traded at the highest value, and they themselves are stable and have a strong reputation. The same applies to them as described for companies with large capitalization.
Their returns are typically not the highest, but due to their stability, they are also popular with the risk-averse investors.
You can also get Blue chip stocks through mutual funds, as these companies allow you to build a well-diversified portfolio not only through individual stocks, but even through mutual funds.
The opposite of blue chip stocks. Their price is typically less than $ 1 per share, hence their name. Their exchange rate shows high volatility.
Everyone loves a bargain and a good buy. And these can seem like a good buy due to the very cheap prices, especially compared to the prices of blue chips. Nonetheless, this is more of an area for speculators, as it is impossible to say how their exchange rate will react.
If you want to invest in this type, be sure to see if there is growth potential in that company, what path they can run realistically.
Why does penny stocks have bad reputation?
Technically, you can make money with any stock. The secret is to sell it at a higher price than you bought it. However, this is far from easy in real life.
There are many benefits to investing in small businesses. Those who buys even at the very beginning can make much bigger profits than those who wait until the company grows up. Penny stocks also seem like such a purchase at first, but commodities remain low as the company behind them isn’t worth much more. The problem starts there is that it’s hard to tell whether a low price is a sign of even great growth potential or a less valuable company.
Hazards of penny stocks
From the stock side
These stocks are not listed on the larger stock exchanges, making them less liquid, making it harder to find a suitable buyer for them.
From the business side
The companies behind them are small, often achieving micro-capitalization rather than small-scale capitalization, and have not yet proven their viability in business.
- Which type of stock have you heard of before?
- Which one would you like to add to your own investment basket?
- How would you choose a stock for yourself?
If you would like to make the right decision or just be in the picture, contact us to arrange a date for this.