Technical Advantages to a Common Stock

Advantages

• Investing in common stocks have many advantages. First, investors can get not only the chance for capital appreciation but also receive a higher return by putting their money in carefully selected common stocks. This means that common stock provides them with the opportunity to make real money so long as they are prudent in their stock selections. Second, common stocks usually rise in value along with prices and hence can protect the investors’ monies against inflation in the long run. Thirdly, even though investors in common stocks may not recoup the original amount invested, the liquidity characteristics of common stocks ensures that they can always have access to their money whenever they need it. Last, investors have strong incentive to put their money in common stocks because their liability in case of bankruptcy is limited only to the amount they invested in a company. Thus corporations can easily raise funds by issuing common stocks because their limited liability feature encourages investors to put their money in this type of stock.
  
  

Common Stock Versus Corporate Rights

• Common stockholders are beneficiaries of certain rights. For instance, they have the right to give away their shares or to transfer their ownership of the corporation to another party. Because they are the owners of the corporation, they have the right to share in the profits of their company. Even though they cannot force the company’s directors to declare profits, they can force the directors to pay cash dividends if such dividends have been legally declared. In addition, common stockholders have voting rights. This means that they have the right to vote by proxy or at stockholders’ meetings. Finally, even though the owners of common stock may not have the right to examine detailed financial records of their company, they do have the right to examine some of their corporations’ books, for instance, the list of their company’s stockholders.
  
  

Value

• The owners of common stocks do not receive predetermined or constant dividends. The dividends they receive are based on their company’s management decision to pay dividends or on the profitability of the company. However, their dividends tend to increase as their companies’ profits increase. This implies that a prime distinguishing advantage of the common stock is the growth of future dividends.
  
  

Conclusion

• The owners of common stocks reap the benefits of success if the company thrives and bears the ultimate risks of loss if the company collapses. Even though dividends are not guaranteed to common stockholders, they are not only the first group to gain or profit if their company’s operations are successful but are also the owners of the company. Owning shares of common stocks is hence the most popular way to invest in corporations. It is thus not surprising that, in United States alone, more than 75 million people own stocks in corporations.