Stock Market

Common Stock – What is it, How to Trade, and Why Should We Buy Common Stock

Common stock is, as the name suggests, the most common stock available, and what most people think about when they consider trading stock. Like any stock, common stock has both pros and cons, but since it is the stock most often traded, any investor will amass a certain amount of common stock in their portfolio.

What is Common Stock?

Common stock offers the holder partial ownership in the company that issued the stock. Common stock also gives the holder voting rights in the company. Normally common stock will offer one vote per share on important issues such as election of board members and stock splits. Sometimes common stock will be offered in different classes that can give the holder higher numbers of votes per share held.
In addition to voting rights common stock also pays dividends. As with all dividend paying stocks, the holder may or may not actually get a dividend payment, depending on the cash flow situation of the issuing company. It’s good to keep in mind that common stockholders get paid their dividends only after all others have been paid, and if the issuing company goes bankrupt the common shareholders are again the last to get paid.

How do You Trade Common Stock?

Trading common stock is fairly simple and can be accomplished through either a traditional broker or an online broker. If you buy your common stock with the intention of selling it for a profit, you will want to try and buy the stock as close to the bottom as you can get, then sell when it reaches as close to the top and you can get. The savvy investor will not necessarily but at the absolute bottom or sell at the absolute top. In fact attempting to buy only at the bottom and sell only at the top can have devastating consequences.

Should We Buy Common Stock?

Common stock is a normal and healthy portion of any, well balanced, investment portfolio. For most investor common stocks are recommended, but they should not represent 100% of your portfolio.