Knowing
the difference between common and preferred stock will help
the average reader at MsFy.com to understand why, when a
company goes bankrupt, such as the Enron case, the employees
were locked out of selling their shares, but the officers
were able to still liquidate and retain their capital. This
should also shed light on just one of the reasons why you
should think about selling shares when you see large blocks
of a stock being sold by officers of a company. An example
of large blocks would be shares in the millions of dollars.
Common Stock: Normally represents a voting ownership interest
in a corporation. Depending on the type and nature of the
corporation issuing the stock, it may be recommended to
investors seeking any combination of investment goals such
as safety, current income, growth and speculation. Characteristics
to consider are the corporation's earnings and net worth,
volatility of stock price, the nature of the corporation's
business and whether the stock can be resold on one of
the listed exchanges or in other public markets. Ex. Most
small shareholders, investors, and employees, hold shares
in common stock.
Preferred Stock: normally represents a non-voting ownership
interest in a corporation. Preferred shareholders usually
receive fixed dividends that are senior to, and payable
before, any common stock dividends and they may also have
preference in the distribution of assets, over common stock
shares. Preferred stock is normally recommended for investors
seeking income. However, like common stock, it may be suitable
for other investment strategies depending on the characteristics
of the corporation. Ex. Most ultra-large shareholders,
company officers, and board members hold preferred shares.
Related Link:
Stock Tutorial
Lois Center-Shabazz is the founder of MsFinancialSavvy.com and author of the
3-time award-winning personal finance book, Let's Get Financial Savvy! ISBN
#0971979502.
Article
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