Stocks

How many letters do NYSE stocks have?

Up to 3

What is the asking price?

The lowest possible price someone is willing to sell a stock for at that moment. If you are interested in buying shares of stock

How is the callability of preferred stock?

The majority of preferred shares are redeemable, giving the issuer the right to redeem the stock at a date and price specified in the prospectus.

What is the difference between the Berkshire Hathaway Class A and Class B shares?

The primary difference is price. Because of the price difference, Class B shares offer increased flexibility for investors and also a potential tax benefit. Buffet declared that the Class A shares will never be split because he believes the high price attracts like minded investors focused on long term profits rather than short term price movements. In 1996, he created the Class B stock. After a 2010 stock split, it can be bought at 1/1500 the price of the Class A shares. Class B shares have lower voting rights. Buffet's main purpose for creating the Class B shares was tog give smaller investors the opportunity to invest directly in Berkshire Hathaway, rather than only participating indirectly through buying mutual funds that mirror Berkshire's holdings

How does appreciation differ between common and preferred stock?

This is where preferreds lose their luster. EX: If a pharmaceutical company discovers an effective cure for the flu, its common stock will soar, while the preferreds in the same company might only increase a few points. The lower volatility of preferreds may look attractive, but preferreds will not share in a company's success the same degree as common stock.

What are the disadvantages of preferred stock?

Callability, lack of specific maturity date makes recovery of invested principal uncertain, limited appreciation potential, interest rate sensitivity, and lack of voting rights

What is an advantage of Class A shares in Berkshire?

Class A shares can be converted into an equivalent amount of Class B shares any time a Class A shareholder wishes to do so. The conversion privilege does not exist in reverse. Class B shareholders can only convert their holdings to Class A by selling their Class B shares and then buying the equivalent Class A shares.

What is a proxy fight?

When a group of shareholders in a particular company attempts to join together to effect change in a particular area of corporate governance within that company. The typical way that one works is that shareholder activists are dissatisfied with a particular aspect of the company, and seek to effect change in that area; however, they often run into resistance from the company's current board members. The dissatisfied shareholders then attempt to persuade other shareholders to use their proxy votes on a proposed change to the company's board positions. The shareholder activists typically attempt to remove board members that oppose their desired changes and install their own board member candidates. The new board members will be receptive to the changes proposed by the shareholder activists, making it easier for the activists to make those changes happen.

How volatile is preferred stock?

While preferreds are interest rate sensitive, they are not as price sensitive to interest rate fluctuations as bonds. However, their prices do reflect the general market factors that affect their issuers to a greater degree than the same issuer's bonds.

What is straight voting?

With this, directors are elected one at a time.This means each share of stock has one vote. It can "freeze out" minority shareholders; that is the reason many states have mandatory cumulative voting. In states, where cumulative voting is mandatory, devices have been worked out to minimize its impact.

What are the 2 types of dividends for preferred stock?

Cumulative or noncumulative. Most are cumulative.

What does the stock price you see on the ticker tape represent?

The last bid price the stock sold for

How many letters do the NASDAQ stocks have?

4

What type of security is preferred stock?

Equity

What is the difference between the bid and asking price?

The spread. It is the basic source of the dealer's profits.

What is an example of a downtick?

Stock ABC previously traded at $10. If the next trade occurs at a price below $10, it is a downtick and will be red.

In addition to the right to vote for directors, what other rights do shareholders usually have?

1. The right to share proportionally in dividends paid 2. The right to share proportionally in assets remaining after liabilities have been paid in a liquidation 3. The right to vote on stockholder matters of great importance, such as a merger. Voting is usually done at the annual meeting or a special meeting 4. They sometimes have the right to share proportionally on any new stock sold-pre emptive right. This means that a company that wishes to sell stock must first offer it to the existing stockholders before offering it to the general public. The purpose is to give a stockholder the opportunity to protect his/her proportionate ownership in the corporation

What are pre emptive rights?

A privilege given to select common stockholders of a corporation that will give them the right to purchase additional shares before the general public has the opportunity in the event that there is a secondary offering. When shareholders, usually a majority shareholder or a shareholder committing large amounts of capital to a startup company, purchase shares, they want to ensure that they have as much voting power in the future as they did when they initially invested in the company. By getting pre emptive rights in its shareholder's agreement, the shareholder can ensure that any secondary offerings to the public do not dilute his/her ownership percentage

What do dividends paid to stockholders represent?

A return on capital directly or indirectly contributed to the corporation to the shareholders. The payment of dividends is at the discretion of the board of directors

What is senior?

A security that ranks above another security in the event of the company's bankruptcy or liquidation. Should the company go bankrupt or face another liquidating event, holders of the senior most security will be in line to to receive repayment of their invested money first, before other creditors receive any payment. Debt is always considered senior to equity. Secured debt is considered senior to unsecured debt.

What is a stop order?

A stop order to buy or sell becomes active only after a specified price level has been reached. They work in the opposite direction of limit orders. A buy stop order is placed above the market, and a stop loss order is placed below the market price. Once the stop level has been reached, the order is automatically converted to a market order. A stop order is used to protect against losses.

What is an example of a limit order?

Assume ABC stock has a bid of $50 and an asking price of $50.30. If you place a limit order to buy shares at $50.10. The new quote would be bidding $50.10 and asking $50.30.You are now the highest bidder and get posted to the board. Likewise, if someone placed an order to sell at $50.20, that means they will only sell their shares if they can get that price or higher. The new quote would be bid $50.10 and asking $50.30. They are now the lowest offer and get posted to the board.

How do you calculate the yield for preferred stock?

If a preferred stock is paying an annual dividend of $1.75 and is currently trading in the market at $25. The current yield is :$1.75/$25=7%. In the market, yields on preferrers are typically higher than those of bonds from the same issuer, reflecting the higher risk that comes with preferred stock.

Why is common stock considered riskier than debt or preferred shares?

In the event of liquidation or bankruptcy, common stockholders have rights to a company's assets only after bondholders, preferred shareholders, and other debt holders have been paid in full. If the company goes bankrupt, the common stockholders will not receive their money until the creditors and preferred shareholders have received their respective share of the leftover assets. This makes common stocks riskier than the latters. The upside to common shares is that they usually outperform bonds and preferred shares in the long run.

How does preferred stock differ from common stock?

It has preference over common stock in the payment of dividends and in the distribution of corporation assets in the event of liquidation. Preference means that the holders of the preferred shares must receive a dividend before holders of common shares are entitled to anything.

What are 2 benefits from staggering?

It makes it more difficult for a minority to elect a director when there is cumulative voting because there are fewer directors to be elected at one time. It makes takeover attempts less likely to be successful because it makes it more difficult to vote in a majority of new directors. It provides "institutional memory", in that there is continuity on the board of directors. This may be important for corporations with significant long range plans and projects.

What does the arrow and color represent?

It shows whether the price is trading higher or lower than the previous day's closing price. If it is red, it is trading lower. If it is green, it his trading higher. Tick indicators are used to easily identify whether those stocks whose last trade was either an uptick or a downtick

What does a common stock usually refer to?

One that has no special privileges in receiving dividends or in bankruptcy. It entitles shareholders to share in the company's profits through dividends and/or capital appreciation. They are usually given voting rights with the number of votes directly related to the number of shares owned. The company's board of directors can decide whether to pay dividends and how much they will be. Common stock also has the potential for capital gains. The return and principal value of the stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Shareholders are not assured of receiving dividend payments. Holders of common stock exercise control by electing a board of directors and voting on corporate policy.

Why does management often encourage shareholders to vote by proxy?

Ownership interests are fully represented even if shareholders are unable to attend the company's annual meeting. Therefore, management tries to get as many proxies transferred to it as possible. However, if shareholders are not satisfied with management, "an outside" group of shareholders can try to obtain votes via proxy. They can vote by proxy in attempt to replace management by electing enough directors. This leads to a proxy fight

How is preferred stock similar to bonds when dealing with interest rates?

Preferreds are issued with a fixed par value and pay dividends based on a percentage of that par at a fixed rate. If interest rates rise, the value of preferred shares would need to fall to offer investors a better rate. If rates fall, the opposite would hold true.

How do the payments differ between common and preferred stock?

Preferreds have fixed dividends and although they are never guaranteed, the issuer has a greater obligation to pay them. Common stock dividends, if they exist at all, are paid after the company's obligations to all preferred stockholders have been satisfied.

What is a device to minimize the impact of cumulative voting?

Staggering the voting for the board of directors. With staggered elections, only a fraction of the directorships are up for election at a particular time. Thus, if only 2 directors are up for election at any one time, it will take 1/(2+1)=33.33%of the stock plus one share to guarantee a seat.

What are examples of companies with different classes of stock?

The Ford Motor company has Class B common stock, which is now publicly traded (it is held by Ford Family interests and trusts). This class has 40% of the voting power even though it has less than 10% of the total number of shares outstanding. Adolph Coors Class B shares, which were owned by the public, had not votes at except in the case of a merger. The CEO of Comcast, Brian Roberts, owned about .4% of the company's equity, but he had a third of all the votes thanks to a special class of stock. Google Class A shares are held by the public, and each share has one vote. The Class B shares are held by company insiders, and each Class B share has 10 votes. As a result, Google's founders and management control the company.

How is a preferred dividend not like interest on a bond?

The board of directors may decide not to pay the dividends on preferred shares, and their decision may have nothing to do with the current net income of the corporation.

What is net change?

The difference in price from the previous trade. When you see this in the newspaper is will be the difference in the current closing price from the previous day's closing price. This is also expressed as a percentage

How do shareholders control a corporation?

They elect directors to the board who hire management to carry out their directives

What are some important characteristics of dividends?

1. Unless a dividend is declared by the board of a directors of a corporation, it is not a liability of a corporation. A corporation cannot default on an undeclared dividend. As a consequence, corporations cannot become bankrupt because of a nonpayment of dividends. The amount of the dividend and even whether it is paid are decisions based on the business judgement of the board of directors. 2. The payment of dividends by the corporation is not a business expense. They are not deductible (able to be subtracted or taken away) for corporate tax purposes. In short, dividends are paid out of the corporation's aftertax profits. 3. Dividends received by individual shareholders are taxable. However, corporations that own stock in other corporations are allowed to exclude 70% of the dividend amounts they receive and are taxed only on the remaining 30%. (70% exclusion occurs when the recipient owns less than 20% of the outstanding stock in a corporation. If a corporations owns more than 20% but less than 80%, the exclusion is 80%. If more than 80% is owned, the corporation can file a single "consolidated" return and the exclusion is effectively 100%. This is the reason why investors in preferred stock are primarily institutions. However, the fact that individuals are not eligible for such favorable tax treatment should not automatically exclude preferred from consideration. In many cases, the individual tax rate under the new rule is 15%. That compares favorably with paying taxes at the ordinary rate on interest received from corporate bonds. Because the 15% rate is not an across the board fact, investors should seek competent tax advice before diving into preferreds.

What is a callable security?

A security with an embedded call provision that allows the issuer to repurchase or redeem the security by a specified date. Since the holder of a callable security is exposed to the risk of the security being repurchased, the callable security is generally less expensive than comparable securities that do not have a call provision.The conditions of the call provision are established at the time the security is issued. They are generally found in the fixed income markets and allow the issuer to protect itself from overpaying the debt.

What is an example of a market order?

A trader may place a market order to go long 1000 shares of ABC. stock when the best offer is $20 per share. If other orders are executed before the trader's order, the order might fill at a higher price. It is possible that parts of the order may execute at different prices. In this example, half of the order might execute at the best offer price and the other could fill at a higher price.

What is noncumulative preferred stock?

A type of preferred stock that does not pay the holder any unpaid or omitted dividends. If the corporation does not pay dividends in a given year, the investor does not have the right to claim any of those forgone dividends in the future. EX: Let's assume Exxon chooses not to pay its $1.10 annual dividend to its cumulative preferred stockholders. In this case, these shareholders do not receive the dividend this year, but they are entitled to collect this dividend at some point in the future. If the preferred shares mentioned above are noncumulative, the shareholders would never receive the missed dividend of $1.10

What is participating preferred stock?

A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition. The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per share amount. EX: Suppose Company A announces that it will release a dividend of $1.05 per share for its common shares, the participating preferred shareholders will receive a total dividend of $1.05 per share. ($1.00+$.05) as well. Participating preferred stock is rarely issued, but one way in which it is used, is as a poison pill. In this case, current shareholders are issued stock that gives them the right to new common shares at a bargain price in the event of an unwanted take over bid.

What is cumulative preferred stock?

A type of preferred stock with a provision that stipulates if the company withholds part, or all, of the expected dividends, these are considered debt that should have been paid earlier, and must be paid before any other dividends. The cumulative dividend is a sum that must be paid to shareholders without regard to the company's earnings or profitability. They are intended to ensure investors a minimum return on their investment in the company. They must issue any accumulated (past) unpaid dividends in its financial statements. Usually, both the accumulated preferred dividends and the current preferred dividends must be paid before the common shareholders can receive anything. Cumulative dividends may contain limitations such as being payable only if the company liquidates. EX: A preferred stock will typically have a fixed dividend yield based on the par value of the stock. This dividend is paid out at set intervals, usually quarterly, to preferred holders. If a company runs into some financial troubles and is unable to meet all of its obligations, it will likely suspend, it will likely suspend its dividend payments and focus on paying the business specific expenses. If the company gets through the trouble and starts paying out dividends again, it will likely have to pay back all of the dividends that are owed to preferred shareholders.

What is a limit order?

An order to buy or sell a stock at a specified price or better. A buy limit order can only be executed at the specified limit price or lower. A sell limit order will be executed at the specified limit price or higher. You will not buy or sell if the specified price is not reached. A limit order to buy must be at or below the market price. A limit order to sell must be at or above the market price. Investors use limit orders when they're attempting to maximize profits. One advantage of a limit order is that they only execute at the predetermined price or better. This can also be a shortcoming because if the price doesn't stay in the desired range, the transaction simply doesn't take place.

How is the convertibility of preferred stock?

As with convertible bonds, they can also be converted into the common stock of the issuing company. This gives investors great flexibility, allowing them to lock in the fixed return from the preferred dividends and potentially to participate in the capital appreciation of the common stock.

What is preferred stock a form of?

Equity from a legal and tax standpoint. It is important to note, however, that holders of preferred stock sometimes have no voting privileges.

What are reasons why a company may choose to issue preferred stock?

Flexibility of payments: Preferred dividends may be suspended in case of corporate cash problems Easier to market: The majority or preferred stock is bought and held by institutions, which may make it easier to market at the IPO.

What is a benefit to the Class B shares in Berkshire?

Flexibility. If an investor owns just one share of Class A and is in need of some cash, the only option is to sell that single share, even if the price far exceeds the amount of capital the investor needs to access. In contrast, a holder of Class B shares can liquidate part of his or her holdings, just up to the amount needed to meet cash flow requirements. Another benefit of Class B is that its much lower price means that BRK stock can be passed to heirs without triggering the gift tax as passing Class A shares does.

What is an example of a stop order?

Frank bought a stock at $20, and it quickly drops to $18. Now he's going on vacation and won't be able to watch the market. To protect himself from a large loss, he places a stop loss order at $15. One of the drawbacks with a stop loss order is that the broker may execute the order at a less favorable price than the trigger. If the stock fell to $15, activating the market order but immediately plunged to $12, his market order would get filled at $12 and cause an $8 per share loss instead of a $5 per share loss. Frank owns 1000 shares of ABC stock. He purchased the stock at $30 per share, and it has risen to $45 on rumors of a potential buyout. He wants to lock in a gain of at least $10 per share, so he places a sell stop order at $41. If the stock drops back below this price, then the order will become a market order and get filled at the current market price, which may be more or less than the current stop loss price of $41. In this case, Frank might get $41 for 500 shares

What does the broker do?

He brings buyers and sellers together, but does not maintain an inventory. He arranges transactions between investors, matching investors willing to buy securities with investors willing to sell securities.

What does the dealer do?

He maintains an inventory and stands ready to buy and sell at any time. He stands ready to buy securities from investors wishing to sell them and sell securities to investors wishing to buy them

What are the advantages of preferred stock?

Higher fixed income payments than bonds or common stock, lower investment per share compared to bonds, priority over common stocks for dividend payments and liquidation proceeds, greater price stability than common stocks, greater liquidity than corporate bonds of similar quality.

What is an example of an uptick?

If a stock goes from $9 to $9.01, then it is an uptick and the arrow is green

What is the purpose for creating multiple classes of shares?

If multiple classes exist, management of a firm can raise equity capital by issuing nonvoting or limited voting stock while maintaining control.

What happens when you ask to purchase somewhere between the bid/ask spread?

If no one fills your order, your order becomes the next bid offer.

What is a real life example of a dealer?

If you buy a used book, this is a secondary market transaction, you pay the store's ask price. If you sell the book back, you receive the store's bid price, often half the ask price. The bookstore's spread is the difference between the two prices.

What is an example to demonstrate the different voting procedures?

Imagine that a corporation has two shareholders: Smith with 20 shares and Jones with 80 shares. Both want to be a director. Jones does not want Smith. We assume that there are a total of 4 directors to be elected. With cumulative voting, the top 4 vote getters will be the new directors. When determining whether Smith will get a seat on the board in cumulative voting, the answer is yes if we ignore the probability of a 5 way tie. Smith will cast 20x4=80 votes, and Jones will cast 80x4=320 votes. If Smith gives all his votes to himself, he is assured of a directorship. The reason is that Jones can't divide 320 votes among 4 candidates in such a way as to give all of them more than 80 votes, so Smith will finish fourth at worst. With straight voting, Smith can cast 20 votes and Jones can cast 80. As a consequence, Jones will elect all of the candidates. The only way to guarantee a seat is to own 50% plus one share. This also guarantees that you will win every seat, so it's really all or nothing.

What is an example of a limit order?

Jim wants to buy shares of Al's Ice Cream. The stock is currently trading in the market at $25 per share. He doesn't want to pay the market price of $25 per share because he thinks its a bid that is too high. Instead Jim sets a limit order to buy at $20. This tells Jim's broker that he is not willing to pay any less than $20 per share for Al's Ice Cream. Once the stock falls to $20 or less, the broker buys the shares for Jim. He can also use a limit order to sell shares. If he wants to sell Al's at $30, he can put in a limit order to sell at $30. His shares will only sell once the stock price hits $30 or higher. Otherwise, he will continue to hold shares in Al's.

How is preferred stock rated?

Like bonds, they are rated by the major credit rating companies. The rating for preferrers is generally one or two tiers below that of the same company's bonds because preferred dividends do not carry the same guarantees as interest payments from bonds, and they are junior to all creditors.

What is a proxy?

The grant of authority by a shareholder to vote his/her shares. This is when a shareholder authorizes another shareholder, a representative of the shareholder or the company's management, to vote on behalf of the shareholder at the annual meeting. For convenience, much of the voting in large public corporations is actually done by proxy. As we have seen with straight voting, each share of stock has one vote. The owner of 10,000 shares has 10,000 votes. Large companies have hundreds of thousands or even millions of shareholders. Shareholders can come to the annual meeting and vote in person, or they can transfer their right to vote to another party.

What is a bid?

The highest price that someone is willing to pay at the moment. If you are interested in selling shares of stock, you should look at the bid price, since that is a buyer. You would be matched with that seller, and the trade got executed.

Stock in JRJ Corporation sells for $20 per share and features cumulative voting. There are 10,000 shares outstanding. If 3 directors are up for election, how much does it cost to ensure yourself a seat on the board?

The question here is how many shares of stock it will take to get a seat. The answer is 2501, so the cost is 2501 X 20=$50,020. It is 2501 because there is no way the remaining 7499 votes can be divided among 3 people to give all of them more than 2501 votes. For example, suppose 2 people receive 2502 votes and the first 2 seats. A third person can receive at most 10,000-2502-2502-2501=2495, so the third seat is yours.

Which stocks appear on the ticker tape?

The stocks with the most volume unless some small company has ground braking news.

In general, if there are N directors up for election,

Then 1/(N+1) percent of the stock plus one share will guarantee you a seat. In our current example, this is 1/(4+1)=20%. So the more seats that are up for election at one time, the easier and cheaper it is to win one.

What are Class A shares?

They are a classification of common stock that may be accompanied by more or fewer voting rights than Class B shares. Although Class A shares are thought to carry more voting rights than Class B shares, this is not always the case. Companies will often try to disguise the advantages associated with owning shares with fewer voting rights by naming those shares Class A and those with more voting rights Class B. EX: One Class A share may be accompanied by 5 voting rights, while one Class B share may be accompanied by only one right to vote, or vice versa. The same definition works with Class B shares

How are directors elected?

They are directed at the annual shareholders meeting by a vote of the holders of a majority of shares who are present and entitled to vote. The general idea is one share one vote, not one shareholder one vote. However, the exact mechanism for electing directors differs across companies. The most important difference is whether shares must be voted cumulative or voted straight

How are the dividends for preferred stock?

They are fixed dividends, normally for the life of the stock, but they must be declared by the company's board of directors. There s not the same array of guarantees that are given to bondholders because bonds have the protection of an indenture. With preferrers, if the company has a cash problem, it can decide to withhold preferred dividends; the trust indenture prevents companies from taking the same action on bonds. Another difference is that preferred dividends are paid out of the company's after tax profits, while bond interest is paid before taxes. This factor makes it more expensive for the issuing company to issue and pay dividends on preferred stocks

What are unpaid preferred dividends classified as?

They are not debts of the firm. Directors elected by the common shareholders can defer preferred dividends indefinitely. However, in such cases, common shareholders must also forgo/go without dividends. In addition, holders of preferred shares. Holders of preferred shares are sometimes granted voting and other rights if preferred dividends have not been paid for some time.

How is the seniority of preferred stock?

They are senior to common stock. However, bonds have more seniority than preferred stock. The seniority of preferrers applies to both the distribution of corporate earnings as dividends and the liquidations of proceeds in the case of bankruptcy.

Why do stock prices change?

They change as a result of market forces. The stock price reflects investors' sentiments about a stock. The stock market is a continuous auction with buyers and sellers.

What is the stated value of preferred stock?

They have a stated liquidating value, usually $100 per share. The cash dividend is described in terms of dollars per share EX: A Ford $5 preferred easily translates into a dividend yield of 5% of stated value

How do preferrers have an unlimited life?

They have no fixed maturity date, but they may be called by the issuer after a certain date. The motivation for the redemption is generally the same as for bonds: a company calls securities that pay higher rates than what the market is currently offering. Also, as is the case with bonds, the redemption price may be at a premium to par to enhance the preferred's initial marketability.

How can preferred stock be considered a kind of equity bond?

They receive a stated dividend only. And if the corporation is liquidated, preferred shareholders get a stated value. They carry credit ratings much like those of bonds. It is sometimes convertible into common stock, and preferred stocks are often callable.

What is cumulative voting?

This allows shareholders with relatively small amounts of stock to participate. If cumulative voting is used, the total number of votes that each shareholder may cast is determined first. This is usually calculated as the number of shares owned multiplied by the number of directors to be elected. With cumulative voting, the directors are elected all at once. A shareholder can distribute votes however he/she wishes

How do preferred shares provide better income security than common stocks?

Unlike common shares, preferred shares pay set dividends at regular intervals. If the company can't make the payment in the particular period. It must still pay that dividend before any dividends are given to common shareholders

What is a market order?

You want to buy or sell a certain number of shares at the best current available price, and you assume your order will be executed as soon as possible. A market order to buy is filled at the ask price, and a market order to sell is filled at the bid price. A market order does not guarantee a price, it only guarantees a fill.