The Different Types and Categories of Stocks Every New Investor Should Know About

 

There are many kinds of stocks. And though we advise that you diversify and just buy an index stock, there are those big winners of stocks that you just can’t pass on easily if you can acquire for a fraction of their value. For example, Warren Buffett’s Berkshire Hathaway is investing in a Vanguard 500 index but it’s also most know for its stock-picking prowess. Here are Berkshire Hathaway’s largest stakes on companies:

 American Express Company 19.1%

 Bank of America Corp 12.3%

 DaVita Inc. 34.4%

 Kraft Heinz Co 26.6%

 Liberty Sirius XM Group Series A 15.3%

 Liberty Sirius XM Group Series C 19.2%

 Moody’s Corporation 13.2%

 Verisign, Inc. 11.5%

 

 

You see, the S&P 500 will give you an average of about 9-10% annual gains but if you’re good enough to do your own stock picking, you can get handsome results from each.

Here are some of the best-performing stocks year to date this September:

 

 

Symbol	Company Name	Price Performance (This Yr)
MRNA	Moderna Inc.	260.57%
BBWI	Bath & Body Works Inc.	124.51%
NUE	Nucor Corp.	121.02%
FTNT	Fortinet Inc.	112.17%
IT	Gartner Inc.	92.73%
GNRC	Generac Holdings Inc.	92.16%
DVN	Devon Energy Corp.	89.85%
CRL	Charles River Laboratories International Inc.	77.64%
MRO	Marathon Oil Corp.	76.16%
NVDA	NVIDIA Corporation	71.47%
COF	Capital One Financial Corp.	68.52%
WAT	Waters Corp.	67.33%
GOOG	Alphabet Inc.	66.06%
RHI	Robert Half International Inc.	65.49%
GOOGL	Alphabet Inc.	65.12%
IRM	Iron Mountain Inc.	61.97%
EXR	Extra Space Storage Inc.	61.32%
JCI	Johnson Controls International Plc.	60.55%
ALB	Albemarle Corp.	60.48%
WST	West Pharmaceutical Services Inc.	59.41%

 

 If you want to see handsome results like this on your portfolio then it’s essential that you learn the types of stocks first.

There are many types of stocks but these are the most common ones you will encounter.

Common vs Preferred Stock

Common stocks represent partial ownership of a company. It also represents voting rights over the company. Majority owners gain control of a company’s operations. Common stocks are double-edged swords. If a company grows, the shareholder’s value of each common stock also grows. However, if the company goes bankrupt, the common stockholders have the potential to lose everything because these are the least priority to get money from the proceeds on the sale of the company’s assets.

Preferred stocks have a priority on liquidation in case the company goes bankrupt. Preferred stockholders also have priority on getting dividends before common stockholders do. The drawback is that some preferred stocks do not have voting rights on the company.

 Large, Mid and Small-cap stocks.

Depending on the country, these stocks are differentiated by the size of their assets. As a general rule, large-cap stocks are more stable but offer less growth than the other two. Mid-cap stocks are the best of both worlds, they’re relatively stable and have better growth potential than large-cap stocks. Conversely, small-cap stocks are the least stable but have the best potential to grow.

 This definition brings us to:

 Growth Stocks vs Value stocks

Another category we should look into are growth stocks vs value stocks. Simply put, growth stocks over the largest upside on price but offer relatively unstable returns. Their value goes up and down a lot and is subject to a lot of speculation. A great example of these is technology stocks or tech stocks. Tech stocks have a very high potential to grow once a company creates a major innovation that can potentially go mainstream in the market.

Value stocks are the opposite of growth stocks. Value stocks have relatively stable stock prices usually going up slightly. Value stocks have stood the test of time. These are usually industry leaders and have a very low chance of expansion domestically.

Dividend vs. Non-dividend Stocks

Dividend stocks are usually preferred over non-dividend stocks because they offer passive income to investors. Dividends are usually given once or twice a year. Some investors specifically go for dividend stocks that offer dividends at the same month every year. These offer a stable and predictable date of dividends.

 If dividend stocks are a good thing, why would anyone go for non-dividend stocks?

Some investors prefer non-dividend stocks because they offer more price appreciation for the stock. If the company doesn’t give out cash dividends, that means they can keep the money and reinvest it in the business so it can earn more.

It always boils down to risk in stocks right? Do you prefer a stable passive income? Or do you prefer the growth potential from non-dividend stocks?

 Cyclical vs Non-cyclical Stocks

Cyclical stocks are as the name implies, “cyclical.” Some stocks follow seasons. Jacket companies have more sales on winter vs summer time. Another form of cyclical stocks are in the construction industry. When the economy is great, the construction indusry also booms because people have more money to have houses and buildings constructed. More money is poured out in the economy to buy and sell goods. But when there is a downturn, construction companies also slow down because people are less likely to spend their money when they have a tight budget.

Non-cyclical stocks on the other hand have relative stable stocks. Examples of these are grocery store chains. We frequent through them no matter what the season is.

Blue Chip Stocks vs Penny Stocks

Blue chips stocks are the top companies in their respective industries. These stocks will usually provide low to decent returns and are very stable. These are perfect for risk-averse investors.

Penny stocks on the other hand are from companies that aren’t that know yet. These provide some of the highest returns but are subject to speculation. Penny stocks are for day traders or risk-takers willing to take on the risk for extreme rewards.

There are more types and categories of stocks but these are the most common. Familiarize yourself with these terms to help guide you when deciding on what stocks to pick based on the risk you want to take.

Remember, knowledge is power!