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How to Buy Common Stock

Updated on January 2, 2013

How To Buy Common Stock

Buying common stock is something everyone in America should be doing.
Buying common stock is something everyone in America should be doing. | Source

Top Tip For Buying Common Stock

The number one tip for buying common stock is very carefully. This may sound like a joke but it isn't. Investing in stock is risky and should not be taken lightly. There is real risk of loosing your entire investment and/or tying up your capital for long periods of time. Any decision to buy common stock should be made with care.

What Are Common Stocks

Everyone knows what common stock is even if they don't know it. Common stock is the same stock that everyone is talking about when they they discuss investing, trading or personal finance. It is the most common form of stock on the stock market, giving it it's name.

Common stock are also called voting or ordinary stock. It is called this because common stock is a partial ownership, or voting share, in the issuing company AND pays and ordinary dividend. Stock, and selling stock in a company, was invented as a way to sell partial ownership of a businesses and investments. Common stock, and similar shares, have been a viable method of business financing and investment for thousands of years.

  • When a business or investment opportunity goes up for public sale it is selling stock. These companies are said to be "going public" and their shares become available to everyone through one of the major exchanges.

Examples Of Common Stocks

American was built on corporations and common stocks. Carnegie, Vanderbilt, Rockefeller and the other great barons of the industrial age all built their empires with the money of investors. Shares of their stock were traded on the floor of the NY Stock exchange. The cut throat methods they used against each other are the basis of modern trading and investment law. Farther back in history the East India Trading Company was another corporation built with the financing of investors who bought shares in the corporation. Today there are thousands of publicly traded companies. They are traded in America on the NYSE, the NASDAQ and AMEX exchanges and through brokerages like OptionsXpress, TD Ameritrade and others.

  • Google (GOOG) - Large technology company, search engine
  • Ford (F) - Americas oldest surviving and operating car manufacturer, one of the pillars of the modern economy
  • Apple (AAPL) - Multi-national technology and gadgets company.
  • US Steel (X) - America's largest steel producer by volume. A conglomeration of the steel works which built America.

The East India Trading Company

The East India Trading company is one of several joint-stock ventures formed in the early 1600's, shortly after Britain defeated the Spanish Armada. The company was owned through shares by the aristocrats of the time and was chartered by the crown to trade with India and the "East". The company was formed to trade in cotton, silks, perfumes, gold, coffee, tea and any thing else on which there could be profit. The company endured for nearly 300 years and was finally dissolved in 1895.

Buying Common Stock

Buying common stock is very easy and something everyone should do. However, there is much more to know about the stock market and investing than I can put into one article so be sure to consult a professional before getting started. Once you are ready it's as simple as opening an account with a an on-line broker and funding it. Owning stock is the foundation of personal wealth, a source of passive income and the rock on which the American economy is built.

Investors In Common Stocks

Investors in stock approach the practice from number of perspectives. It is important to understand the differences, especially between trading and investing. While I believe that stocks and the stock market should be part of everyones financial plans I also believe it is a place where fortunes can be lost, quickly.

  • Investing - A long term and methodical approach to buying stocks. It is aimed at long term capital appreciation and dividends. Investors typically utilize a buy-and-hold method of stock buying. Investors sometimes use derivative trading instruments to protect or enhance gains.
  • Trading - A short term, but also methodical, approach to buying stocks. It is aimed at short capital gains and may also use derivative instruments as part of a cash flow or hedging strategy.

What Are Preferred Stock

  • Preferred stock are subordinate to bonds and debt but superior to common stock.
  • Preferred stock receive dividends and are paid out prior to any common, or ordinary, dividends.
  • Preferred stock are rated by the same agencies as bonds since they perform in the same way but are usually ranked lower.
  • Preferred stock holders do not get to vote on board members or policy.
  • Preferred stock may trade on the open market but will usually not perform in the same manner as common stock.
  • Preferred stock can have a variety of rights not granted to common stock holders.

Common Stock Or Preferred Stock: What Is The Difference

There is a difference between common and preferred stock and it is important to understand it. Preferred stock means that shareholders and "preferred" over common stock holders; they get dividends and payouts, including back payments and any liquidations for bankruptcy before common stock holders.

  • Common stock holders do not receive any dividend payments until after all preferred stock dividends are paid in full.
  • Common stock holders are last in line to receive money in the event of a bankruptcy. This includes bondholders, creditors(including employees) and preferred stock holders.
  • There are voting and non-voting forms of common stock.

There are two benefits to common stock over bonds and preferred stock. Common stock performs better over time than either of the other two and stock holders have control of the company. Because of this common stock are better investments for the long-term.

  • Common stock holders have control of the company. They influence business by electing board members and voting on company policies.
  • Common stock performs better over time than bonds or preferred stock.


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    • TMHughes profile image

      TMHughes 5 years ago from Asheville, NC

      I use optonsxpress, it's a full service broker. Be sure to get some good advice before starting. Good luck.!

    • Kimberly Vaughn profile image

      Kimberly Vaughn 5 years ago from Midwest

      I have actually been thinking about this and wondering what is the easiest way to buy stock without a hassel. Are there any online brokerage companies that you recommend?