By Asante Isaac
There are several languages in this world but to rich investor the major languages in the world of investing are common stock, preferred stock, bonds or debentures and options. To be successful rich investor you need these languages in order speak well on the stock market. Let us examine each of them to know how they are use.
Common Stock: all companies or corporations all over the world have common stocks. These stocks are sold to shareholder who eventually becomes part owner of the company. Been part owner means you have taking equity position and it allows you to participate in any future gains or losses. It is done this way, when a company is formed there are private individuals or institutional investors who buy some of these stocks and it make them form part of the company. Common stocks are very cheap and they give opportunity to hold it as long as the company lives.
Preferred stock: this stock requires that dividend is paid first to its members before common stockholders in each year. The dividend payment here is very higher especially when it is cumulative preferred stock, thus, any past divided omitted will be rolled over to next dividend payment. Other preferred stocks are convertible and can be converting into common stock. However, preferred stocks do not have growth potential and stability as common stock and bonds. The preferred only stands for dividend primacy only.
Bonds or Debentures: the third language of the rich is bond or a debenture which is interest-bearing certificate sold by corporations and governments to raise money for expansion or capital. An investor who purchases a bond is essentially loaning money to the bond's issuer in return for interest. The investor can hold the bond and collect interest payments or sell the bond to a third party. The interest payment depends on the length of deposit, the amount invested and the rating of the bond. Usually investing in any bond has predetermined period. Bonds do not grow in value as stock do especially corporate bonds.
Options: this language is the most preferred language of the rich as it has insurance inbuilt which help the investor to secure his investment whenever possible. In the world of options, two major words dominate a lot that is “call” and “put” options. In simple terms, call is to buy whereas put is to sell. They all involve a contract between two parties and each has a stated period for expiration. The main reason why the rich prefer this language is that it gives them the chance to make sizable profit on the move of a stock while limiting the amount of possible loss. There are other fancy devices called “straddles”-a combination of a put and a call; “strips” which include two puts and one call; and “straps” which are one put and two calls.
Your ability to practicalise these words will help eliminate some of the financial nightmares we usually bear. We speaking it and bragging over it will not guarantee any success out of it. Let us learn to live it so that it could form part of our nature.