Wealth, Actually by Frazer Rice

Author:Frazer Rice
Language: eng
Format: azw3, epub
ISBN: 9781619618596
Publisher: Lioncrest Publishing
Published: 2018-08-07T04:00:00+00:00

Stocks

Publicly traded stocks are equity ownership positions in businesses. They can be bought and sold within brokerage accounts. The stocks may be based in the United States, or they may be foreign stocks based in other countries. In the United States, publicly traded stocks are linked to companies that must register with the SEC and provide ongoing information about the company’s financial results.

Stocks have a variable value, and the ability to buy and sell stock is linked to the price being asked by the seller and the amount the buyer is willing to pay. The risk is whether you can find someone willing to buy your stock at the price you’re asking. When the seller’s asking price and buyer’s bidding price meet, the trade is executed and the equity position changes hands. When stocks don’t move, it’s because those two numbers are too far apart.

Stocks can provide the most upside and can also carry the most risk. When you look at stocks, you need to analyze whether the company’s cash flow and growth prospects will increase over time and whether the market will recognize these characteristics.

Publicly traded stocks are fairly liquid, and traditional stockbrokers can usually sell them within a day. Smaller stocks with lower market capitalization may take longer to sell, because there is a smaller pool of owners and buyers. If you really need to liquidate a stock, you can usually find a willing buyer if your selling price is low enough. You may not be happy with the price, however, and that presents a different type of liquidity issue. You’ll likely be able to sell it but not always for the price you’d like to get.

From a transparency standpoint, stock is freely traded, registered with the SEC, and linked to public reports. Along with several Wall Street firms, the financial press—publications such as Barron’s, Wall Street Journal, Investor’s Business Daily, and Kiplinger’s—prepare research reports about large stocks. Other companies provide further intelligence about stocks, both in the traditional media and online. Nevertheless, stocks are much less transparent than cash, because you must rely on the information that is publicly available without knowing what may be happening behind the scenes. There may be strategic shifts under way that have not been shared with the public. Even though there may be many sources of information about stocks, they are not a perfectly transparent investment.

The sudden collapse of Lehman Brothers is a good example of the lack of transparency that can occur. When markets were moving chaotically in 2008, the condition of Lehman’s capital and loan portfolios were conveyed to be much different than they actually were. Even if you are watching CNBC or reading the newspapers to track an investment, you may not hear what is truly going on behind the scenes. There can be a lag in the reporting, and in some cases, there can be outright fraud. With the failure of Enron, for example, faith was placed in management’s reporting while something quite different was transpiring behind the scenes.

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