Financial Markets Book Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
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by Robert Hashemian

Page 182

not guarantee safety or performance. AT&T and Lucent, both of which are considered blue chips and are widely held, are recent examples of blue chip stocks going sour.

Common Stocks

In most cases when people talk about stocks, common stocks are what they refer to. Most of the shares issued by a public company are common shares. Common stocks (shares) represent units of ownership in a company, and common shareholders usually control the board of directors in the company (i.e., they have voting rights). Common shares normally have very low par (face) values, sometimes a fraction of a cent. Ironically, while the common shareholders are considered owners of a company, they have the last right to the company's assets. Meaning that if the company is liquidated (possibly due to bankruptcy), the common shareholders will be the last on the list to receive any proceeds, and in most cases by the time others are paid off nothing is left for the common shareholders. This is the price to pay for the ownership in the company and the potential to reap great profits through the company's common stock.

Preferred Stocks

Preferred stocks are another class of stocks issued by some companies to attract investors. While preferred stocks do not extend voting rights to their holders, they usually enjoy a higher priority over common stocks for dividend distributions (covered later), and in case of liquidation, asset distributions. Preferred stocks usually have much higher par values than their common counterparts, but just as common stocks, they do represent ownership in the company. The average investor would, however, mostly deal with common stocks.


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