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When corporations or companies are formed and created, the ownership of the individuals or persons who have contributed or invested a certain amount of money to the company, is measured by stocks.
Common stock is ownership in a company very similar to the stocks that people are so used to trading. Companies sell common stock through public offerings and the common stocks are traded among investors on the secondary market (stock exchange). Those who bought stocks from companies hope to earn dividends from their share of company profits. Unfortunately, many profitable companies don’t pay dividends and most of them never have any intention of doing so. Investors holding stocks should closely monitor the stock market. One obvious risk, which had happened in many times in the past is that the price may fall below the acquisition value. Hence, they need to sell out their stocks before the price falls; when the stock price reaches its desired selling price in order to recoup your investment and not lose from the transaction.
Preferred stock on the other hand, like a common stock is sold by companies and traded among investors on the stock market. Preferred stock has less risk because they work like bonds. But with this nature, preferred stocks can expect less earnings. Bonds guarantee regular interest payments. Preferred stocks guarantee regular dividend payments for a specified time. They are less volatile than the common stocks and they virtually eliminate the possibility of large capital gains. They generally have a dividend that must be paid out before dividends to common stockholders are paid. And the shares usually do not have voting rights.
Preferred stocks are rated in the same way that bonds are. Standard & Poor’s ratings range from the best (AAA) down to the worst (D). These ratings are the indicators that help investors make judgments on the economic stability and ability by the company to pay dividends. And in the event that the company defaults on dividends and declare bankruptcy, preferred stockholders are entitled to assets before the common stockholders.
In terms of earnings, investors may opt for the risky common stocks. In terms of earnings security, preferred stocks are designed to provide an income generating opportunity for investors while raising capital for the company.
Now that you have a clear picture of stock exchange, investing in the market will be a lot easier as you already know which one yields higher return and which between the two guarantees return. To further know how stock exchange works in Thailand, you can consider hiring an accounting firm or an accountant that are knowledgeable in stock trading.
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