Why do investors purchase common stock?

, , Leave a comment

Stocks, or shares, refer to the original capital expenditure of a particular business.  The capital spent at the beginning is divided into shares of stocks, and these may be classified into different types or classes.  When one has stocks or shares of a particular business or company, for example, it simply means that this person owns part of this organization.  The person or unit that holds the most number of shares is referred to as the biggest shareholder or stockholder for a particular company.  Stocks that are offered for investors typically come in the form of common stocks and preferred stocks.  Both types of stocks provide several benefits to would-be investors, but there are people who prefer to invest in common stocks.

From the term itself, “common stocks” are the most “common” shares that are being offered by businesses and organizations.  In most cases, the majority of the capital stocks or shares of a business are in the form of common stocks.  One important reason that investors prefer common stocks over other types is that these types of stocks entitle the holder with voting rights.  For a certain investor or stockholder, for example, having shares of stocks for a particular company entitles him/her to have voting rights in terms of selecting leaders and board members of the chosen business to invest in.  This right basically gives some power to the investor in terms of choosing the right persons to manage the business they are investing in.  This same voting right is not offered to people that invest in preferred types of stocks, for example.

Another reason that investors choose to purchase common stocks is that it can provide higher returns when compared to preferred stocks.  Despite the higher risks involved in common stocks, the possible gains in the long term are much higher over preferred stocks, and this is a big reason why people choose this type of stock when investing their hard-earned money.

Author: erwin

Facebook Comments
Help us improve. Please rate this article:

Leave a Reply