Diversification of Stocks – A Must For All Investors
Stocks are all the stocks owned by a corporation in common. In ordinary language, the stocks are collectively referred to as “stock”. Each share of stock represents a fractional share of the entire corporation in percentage terms. The term “book” is used to describe stocks of which there is no actual record. All the public information about such stocks is available only in books.
The major stocks on the New York Stock Exchange (NYSE) include such names as General Electric, McDonald’s, Wal-Mart, AT & T, Union Bank, Morgan Stanley and many others. Stocks are sold in the stock market by brokers or dealers. These brokers or dealers to buy and sell the stocks for profit, and they may do so anonymously or through a variety of methods. There are different types of ways in which different stocks can be bought and sold. These include “direct selling”, where shares are purchased directly from the company, and “through a broker”, where the broker acts as a salesperson for the company.
Stocks can also be traded on exchanges, such as the New York Board of Trade (NYBOT) and the NASDAQ. There are different types of exchanges, including pink sheets and the over-the-counter electronic market. While trading on the NYSE and NASDAQ involves higher costs, they are less risky. The pink sheets, or Over-The-Counter Exchange, has lower costs and can be accessed from any computer around the world, whereas the NYBOT requires special broker services.
Long-term investors usually buy stocks based on the profit they expect to make in the short-term. These stocks have high liquidity and potential for rapid appreciation. They generally have lower risk but higher potential for profit than short-term investments. For this reason, investors with long-term investment goals often avoid short-term stocks. This is because they are more sensitive to changes in the market and can take much longer to return a profit than do short-term investments. Investors who hold long-term stocks may also choose to diversify their portfolio by owning other types of stocks.
Diversification of an investment portfolio is important because it increases the chance of success of all the stocks in the portfolio. However, diversification does not always take the form of buying and selling different stocks on the same day. Different stocks hold different characteristics, such as growth potential, liquidity, price, and different historical performances. To achieve greater success with your investment portfolio, it is advisable to keep stocks in various categories that complement each other.
Long-term investors typically invest money in companies with strong financial histories and strong market caps. They usually expect these stocks to have a sustained period of profitability even during times of economic uncertainty. Market cap and market value represent the price per share (PPS) and the overall value of all outstanding shares (OCE) of a company. The PPS represents the value of all shares outstanding while the OCE is the value of all outstanding shares multiplied by the PPS. Both the PPS and the OCE represent the value of a company’s equity. Because PPS and OCE values are highly sensitive to economic factors, it is important to diversify your investments to take advantage of different market caps and values of stocks to help you improve your risk and reward ratio for each category of investment.