Common Stock In The Stock Market

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For centuries financial systems have been indispensible parts of every country economic development. It plays an important role in the growth of industry and affects the whole economy in various ways. The basic role of financial system is to gather money from individuals who have more money (surplus) to those who are in need of the money (Deficit) with lower transaction costs. Both financial institutions and financial markets enhance this economic growth but the main emphasis of this paper will be on the stock market, which is one of the most important components of the financial market. This paper will also provide a profound study of how Stock Market investors can protect their investments and also analyze an article on investors
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There are several characteristics that distinguish common stock securities from other securities. One of the most distinguishing features of common stock is the greater risk it implies. Common stock is the residual claim against the firm cash flow or assets. This means that if the company ever goes bankrupt, common stock holders will be paid lastly after employees, government, short-term creditors, bondholders, banks and preferred stock holders (Kidwell, Blackwell, Whidbee, & Sias, 2013). This also means that common stock holder in counter part of their risk exposure will get higher rewards than other forms of investment securities. Another feature common stockholders have is that the higher legal rights they have compared to other securities holders. They enjoy limited liabilities, which means that their losses are limited to their initial investments. The second legal right that common stock holders enjoy is the voting right. They have the right to elect the board of directors and therefore they have a say on the company business activities (Kidwell, Blackwell, Whidbee, & Sias, 2013). The third characteristic of common stock is their dividend payment policy. Due to their treatment as owners, Common stock holders are not guaranteed fixed dividends. When a corporation makes profit, the managers will decide whether to reinvest the profit in the company (retained earnings) for the…show more content…
According to the Xavier Gabaix investing in Gold mining companies is as unsafe and unpredictable as investing in any other stocks. Instead garbaix advice conservative or long term investor to invest in cash- like instruments such as money market funds, short term bonds even though they have low interest. The reason why we agree with these advice is due to the properties that bond have such contract between the corporation and the investor, the fixed return at every agreed time, also the fact money market fund are easily liquidable given their life time. That being said an investor should also consider the fact that investing in bonds does not guarantee safety if there is a high rate of

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