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Equities
A security representing a stake in the share capital of a public limited
company and entitling the holder to membership rights and economic
rights. The shareholder has rights of participation (voting right,
right to information) and rights to assets (right to a share of profits,
subscription rights). A company can distribute periodically, at its
own discretion, a portion of its earnings, cash flow or capital to
shareholders, in cash or additional stock, called dividend payment.
Stocks can be purchased through a broker who goes to a stock exchange
to buy/sell these shares for the customer. The most well known stock
exchanges are the New York Stock Exchange (NYSE), the American Stock
Exchange (AMEX), the NASDAQ exchange, the London Stock Exchange (LSE),
Euronext, Swiss Exchange (SWX). The share size and capitalization
of the company, among other factors, determine where the company's
stock is traded.
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Blue
Chips
Term used to describe equities of leading companies with high
credit ratings, high market capitalization, strong earnings
power and sound financial structure. |
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Small
Caps
Companies with publicly traded stock that have market capitalization
of less than $1 billion and which are generally more volatile
than large caps. |
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Preferred
Shares
Preferred Shares are shares representing an ownership interest
in a company that has "preference" over common stock
shares. Preferred shares are similar to a bond issued with a
rate of interest but no maturity. Most buyers of preferred stock
are large corporations, or investors seeking a steady flow of
dividend income rather than share price appreciation. When a
preferred stock is purchased, the company has already set the
dividend. Paid on a quarterly basis, the dividend payment does
not fluctuate in price, and does not depend on how well the
company is performing. If the company goes bankrupt, claims
from preferred shareholders are satisfied before those of common
shareholders. |
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Warrants
A warrant is a long dated option which allows the owner to participate
in the capital gains (losses) of a firm without buying the common
stock. In effect, the holder of a warrant has a leveraged play
on the corporate common stock. As a form of option, a warrant
has an exercise price and an expiry date. The exercise price
is the price at which the holder may convert the warrant into
common shares of the issuer. The expiry date is the last date
on which the warrant may be converted into common shares. Given
that a warrant is generally issued to reduce the cost of a debt
issuer, the expiry date is usually more than two years from
issuance. This allows warrants to trade separately from the
bond with which they were issued, thereby providing the investor
with a long dated option on a firm's common stock. There is
a drawback to warrants for those investors concerned with income.
As an option, a warrant does not pay a dividend, and is subject
to a certain amount of price compression as the underlying stock
approaches or surpasses the exercise price.
This is only a factor if the investor is purchasing the warrants
when the common stock is trading near the exercise price. Warrant
holders have no voting rights until the warrants are converted
into common shares. Upon conversion an active role may be taken
in corporate governance. If the warrants provide for conversion
into preferred shares, it is unlikely the holder will gain any
influence on corporate governance upon conversion. |
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