What are “preferred” stocks? How are they different from normal (common) stocks?
It is just a different category of stock issued by a company that gives its owners different treatment when it comes to dividend payment and a few other financial transactions. Preferred stock holders get treated with some preference with regard to the company's profits and assets. For example, dividends are typically guaranteed to preferred stock holders whereas the leadership in the company can elect at any time not to pay dividends to common stockholders. In the event the company is liquidated, the preferred stockholders also get to be in line ahead of common stockholders when the assets are distributed. "I seem not to be able to comment on the first answer due to reputation, so I'll aim to enhanced the first answer which is generally good but with these caveats: 1) Dividends are not ""guaranteed"" to preferred shareholders.  Rather, preferred shareholders are normally in line ahead (i.e. in preference to or ""preferred"") of common shareholders in terms of dividend payment.  This is an extremely important distinction, because unlike investments that we generally consider ""guaranteed"" such as CDs (known as GICs in Canada), a company's board can suspend the dividend at anytime for long periods of time without significant repercussions -- whereas a missed payment to a bank or secured bondholder can often push a company into bankruptcy very quickly. 2) Due to point 1), it is extremely important to know the ""convenants"" or rules sorrounding both the preferred shares you are buying and the other more senior creditors of that issuing company (i.e. taxes (almost always come first), banks loans, leases, bonds etc.).  It is also important to know if a particular preferred share has ""cumulative"" dividends.  You generally only want to buy preferred's that have ""cumulative"" dividends, since that means that anytime the company misses a payment, they must pay those dividends first before any other dividends at the same or lower priority in the future. 3) Unlike a common stock, your upside on a preferred stock is relatively fixed: you get a fixed share of the company's profit and that's it, whereas a common shareholder gets everything that's left over after interest and preferred dividends are paid. So if the company does really well you will theoretically do much better with common stock over time. For the above reasons, it is generally advisable to think of preferred shares as being more similar to really risky bonds in the same company, rather than similar to common stock.   Of course, if you are an advanced investor there are a lot more variables in play such as tax considerations and whether the preferred have special options attached to them such conversion into common shares." I know this has already been answered and I know its frowned upon to dump a link, however, when it comes to investments it's best to get data from an 'official' source to avoid misinterpretations and personal opinions.  The attached pdf is from the S&P and provides detailed, but not overwhelming, information regarding the types of preferreds, the risks & common terminology: http://us.spindices.com/documents/education/practice-essentials-us-preferreds.pdf Page 1: PREFERRED SECURITIES DEFINED  Borrowing from two worlds, a preferred security has both equity and   fixed income  characteristics.  As such, the preferred structure   offers a flexible approach to structuring a preferred offering for an   issuer.   Companies have many reasons to issue preferred securities.  Financial   institutions, for  example, need to raise capital.  Many times they   will use the preferred market because of  any required regulatory   requirements, in addition to cost considerations.  Banks and    financial institutions are required to maintain a certain level of   Tier 1 capital—which  includes common equity and perpetual   non-cumulative preferreds—as protection against  the bank’s   liabilities.  Issuing more common equity comes at a cost, including   the dilution  of existing shares, which a company may not want to   bear.  Preferred securities are a  cheaper alternative approach to   raising the capital.  Companies often use preferred stock for strategic reasons.  Some of   these uses include:
"(Note: out of my depth here, but in case this helps...) While not a direct answer to your question, I'll point out that in the inverse situation - a U.S. investor who wants to buy individual stocks of companies headquartered outside US - you would buy ADRs, which are $-denominated ""wrapper"" stocks.  They can be listed with one or multiple brokerages. One alternative I'd offer the person in my example would be, ""Are you really sure you want to directly buy individual stocks?""  One less targeted approach available in the US is to buy ETFs targeted for a given country (or region).   Maybe there's something similar there in Asia that would eliminate the (somewhat) higher fees associated with trading foreign stocks." "Okay. An ETF is an ""Exchange Traded Fund"". It trades like a stock, on the stock market.  Basically by buying one ETF, you can have ownership in the underlying companies that make up the ETF. So, if you buy QCLN, a green energy ETF, you own Tesla, First Solar Inc, SunPower Corporation, Vivint Solar, Advanced energy industries and a bunch of other companies that are involved in clean energy.   It allows you to gain exposure to a sector without having to buy individual companies.  There are ETFs for lots of different things. Technology ETFs, Healthcare ETFs, Consumer Staples ETFs, Utilities ETFs, etc.  REITS are essentially the same thing, except they own real estate." You cannot trade in pre-IPO shares of companies like Facebook without being an accredited investor. If a website or company doesn't mention that requirement, they are a scam. A legitimate market for private shares is SecondMarket. Eh. The valuations are extrapolations based on the value of equity with liquidation rights. Which is fine: if I'm a buyer of that class, I don't really care what the value of common is; I care what the value of that class of equity is.   Bloomberg tries to paint that as some conspiracy, which is ridiculous. It's great that you have gotten the itch to learn about the stock market.  There are a couple of fundamentals to understand first though. Company A has strong, growing, net earnings and minimal debt, it's trading for $100 per share.  Company B has good revenue but high costs of goods and total liabilities well in excess of total assets, it's trading for $0.10 per share.  There is no benefit to getting 10,000 shares or 10 shares for your $1,000.  Your goal is to invest in companies that have valuable products and services run by competent management teams.  Sure, the number of shares you own will dictate what percentage of the company you own, and in a number of cases, your voting power.  But even a penny stock will have a market capitalization of several million dollars so voting power isn't really a concern for your $1,000 investment.   There is a lot more in the three basic financial statements (Income Statement, Balance Sheet, Statement of Cash Flows) than revenue.  Seasoned accountants can have a hard time parsing out where money is coming from and where it's going. In general there are obvious red flags, like a fast declining cash balance against a fast growing liabilities balance or expenses exceeding revenue.  While some of these things are common among new and high growth companies, it's not the place for a new investor with a small bankroll. A micro-cap company (penny stocks are in this group) will receive rounds of financing via issuing preferred convertible shares which may include options on more shares.  For a company worth $20mm a $5mm financing round can materially change the finances of a company, and will likely dilute your holdings in common stock.  Small growth companies need new financing frequently to fund their growth strategies. Revenue went up, great... why?  Did you open another store?  Did you open another sales office?  Did the revenue increase this quarter based on substantially the same operation that existed last quarter or have you increased the capacity of your operation?  If you increased the capacity of your operation what was the cost of the increase and did revenue increase as expected?  Can you expect revenue to continue to grow at this rate or was it a one time windfall from an unusual order? Sure, there are spectacular gains to be had in penny stocks.  XYZ Pharma Research (or whatever) goes from $0.05 to $0.60 and you've turned your $1,000 in to $12,000.  This is a really unlikely event...  Buying penny stocks is akin to buying lottery tickets.  Unless you are a high ranking employee at the company capable of making decisions, or one of the investors buying the preferred shares mentioned in point 3, or are one of the insiders of a pump and dump scam on the stock, penny common stocks are not a place to invest.  One could argue that even a company insider should probably avoid buying common stock. Just to illustrate the points above, you mention: Doing some really heavy research into this stock has made me question the whole penny stock market. Based on your research what is the enterprise value of the company? What were the gross proceeds of the last financing round, how many shares were issued and were there any warrants attached? What do you perceive to be heavy research?  What background do you have in finance/accounting to give weight to your ability to perform such research? Crawl. Walk. Then run. Don't kid yourself in to thinking that since you have some level of education you understand the contracts involved in enterprise finance. A share is just a part ownership of a company. If you buy a share of a green stock in the open market, you now just own  part of a green company. Just like if you buy a house, the money you paid moves to the former owner, but what you are getting is a clear asset in return that you now own. Via mutual funds/indexes this can get a little more complicated (voting rights etc tend to go to the mutual/indexing company rather than the holders of the fund), but is approximately the same thing: the fund buys assets on the open market, then holds them, buys more, or sells them on behalf of the fund investors. Don't ever quantify a stock's preference/performance just based on the dividend it is paying out Volatility defined by movements in the the stock's price, affected by factors embedded in the stock e.g. the corporation, the business it is in, the economy, the management etc etc. Apple wasn't paying dividends but people were still buying into it. Same with Amazon, Berkshire, Google. These companies create value by investing their earnings back into their company and this is reflected in their share prices. Their earnings create more value in this way for the stockholders. The holding structures of these companies also help them in their motives. Supposedly $100 invested in either stocks. For keeping things easy, you invested at the same time in both, single annual dividend and prices more or less remain constant. Company A: $5/share at 20% annual dividend yield.  Dividend = $20 Company B: $10/share at 20% annual dividend yield  Dividend = $20 You receive the same dividend in both cases. Volatility willn't affect you unless you are trading, or the stock market tanks, or some very bad news comes out of either company or on the economy. Volatility in the long term averages out, except in specific outlier cases e.g. Lehman bankruptcy and the financial crash which are rare but do happen. In general case the %price movements in both stocks would more or less follow the markets (not exactly though) except when relevant news for either corporations come out. "I think you've got basics, but you may have the order / emphasis a bit wrong. I've changed the order of the things you've learned in to what I think is the most important to understand: Owning a stock is like owning a tiny chunk of the business Owning stock is owning a tiny chunk of the business, it's not just ""like"" it. The ""tiny chunks"" are called shares, because that is literally what they are, a share of the business. Sometimes shares are also called stocks. The words stock and share are mostly interchangeable, but a single stock normally means your holding of many shares in a business, so if you have 100 shares in 1 company, that's a stock in that company, if you then buy 100 shares in another company, you now own 2 stocks. An investor seeks to buy stocks at a low price, and sell when the price is high. Not necessarily. An investor will buy shares in a company that they believe will make them a profit. In general, a company will make a profit and distribute some or all of it to shareholders in the form of dividends. They will also keep back a portion of the profit to invest in growing the company. If the company does grow, it will grow in value and your shares will get more valuable. Price (of a stock) is affected by supply/demand, volume, and possibly company profits The price of a share that you see on a stock ticker is the price that people on the market have exchanged the share for recently, not the price you or I can buy a share for, although usually if people on the market are buying and selling at that price, someone will buy or sell from you at a similar sort of price. In theory, the price will be the companies total value, if you were to own the whole thing (it's market capitalisation) divided by the total number of shares that exist in that company. The problem is that it's very difficult to work out the total value of a company. You can start by counting the different things that it owns (including things like intellectual property and the knowledge and experience of people who work there), subtract all the money it owes in loans etc., and then make an allowance for how much profit you expect the company to make in the future. The problem is that these numbers are all going to be estimates, and different peoples estimates will disagree. Some people don't bother to estimate at all. The market makers will just follow supply and demand. They will hold a few shares in each of many companies that they are interested in. They will advertise a lower price that they are willing to buy at and a higher price that they will sell at all the time. When they hold a lot of a share, they will price it lower so that people buy it from them. When they start to run out, they will price it higher. You will never need to spend more than the market makers price to buy a share, or get less than the market makers price when you come to sell it (unless you want to buy or sell more shares than they are willing to). This is why stock price depends on supply and demand. The other category of people who don't care about the companies they are trading are the high speed traders. They just look at information like the past price, the volume (total amount of shares being exchanged on the market) and many other statistics both from the market and elsewhere and look for patterns. You cannot compete with these people - they do things like physically locate their servers nearer to the stock exchanges buildings to get a few milliseconds time advantage over their competitors to buy shares quicker than them." "Preferred dividends and common dividends are completely separate transactions.  There's not a single ""dividend"" payment that is split between preferred and common shares. Dividends on preferred shares are generally MUCH higher than common dividends, and are generally required by the terms of the preferred shares, again unlike common dividends, which are discretionary." "There are basically two different markets for ADRs and ordinary shares. 1) The American market, 2) the ""local"" market. The following is not true for most stocks in ""developed"" markets. But it is often true that the American market (for ADRs) is far more liquid than the local market for ordinary shares of a developing country. For instance, there was a time when the ADRs of Telmex (Telefonos of Mexico) was the fifth most traded stock in the world, after Exxon (before its merger with Mobil), IBM, Microsoft, and A T&T, meaning that it was easy to trade with low fees on the NYSE. It was much harder and slower to buy the local shares of Telmex in Mexico, on the Mexican exchange. Also, the accompanying currency transactions were harder to execute with the ord, because you have to settle in local currency and pay an FX commission. With the ADR, the exchange rate is ""built"" into the (dollar) price, and you settle in dollars." In this type of strategy profit is made when the shares go down as your main position is the short trade of the common stock. The convertible instruments will tend to move in about the same direction as the underlying (what it can be converted to) but less violently as they are traded less (lower volatility and lower volume in the market on both sides), however, they are not being used to make a profit so much as to hedge against the stock going up. Since both the bonds and the preference shares are higher on the list to be repaid if the company declares bankruptcy and the bonds pay out a fixed amount of interest as well, both also help protect against problems that may occur with a long position in the common stock.  Essentially the plan with this strategy is to earn fixed income on the bonds whilst the stock price drops and then to sell both the bonds and buy the stock back on the market to cover the short position. If the prediction that the stock will fall is wrong then you are still earning fixed income on the debt and are able to convert it into stock at the higher price to cover the short sale eliminating, or reducing, the loss made on the short sale. Effectively the profit here is made on the spread between the price of the bond, accounting for the conversion price, and the price of the stock and that fixed income is less volatile (except usually in the junk market) than stock. Let's work from the inside out. Options are not stock. Options are a contract that give you the right to own the stock. For options to have value they have to be exercised. Straight line means that each quarter 1/16th of the option grant becomes yours and the company cannot take it away. Four quarters in a year times four years is 16 quarters. 'Grant' means they are giving you the options at no cost to you. 'Nonqualified' means that there is nothing you have to do, or be, in order to get the options. (Some options are only for management.) Fund rebalancing typically refers to changing the investment mix to stay within the guidelines of the mutual fund objective.  For example, lets say a fund is supposed to have at least 20% in bonds.  Because of a dramatic increase in stock price and decrease in bond values it finds itself with only 19.9% in bonds at the end of the trading day.  The fund manager would sell sufficient equities to reduce its equity holdings and buy more bonds.   Rebalancing is not always preferential because it could cause capital gain distribution, typically once per year, without selling the fund.  And really any trading within the fun could do the same. In the case you cite the verbiage is confusing.  Often times I wonder if the author knows less then the reader.  It might also be a bit of a rush to get the article out, and the author did not write correctly. I agree that the ETFs cited are suitable for short term traders.  However, that is because, traditionaly, the market has increased in value over the long term.  If you bet it will go down over the long term, you are almost certain to lose money. Like you, I cannot figure out how rebalancing makes this suitable only for short term traders.  If the ETFs distribute capital gains events much more frequently then once per year, that is worth mentioning, but does not provide a case for short versus long term traders.   Secondly, I don't think these funds are doing true rebalancing.  They might change investments daily for the most likely profitable outcome, but that really isn't rebalancing.   It seems the author is confused. OMG. A recession is coming.  Wait...hasn't that been a true statement since forever? No shit a recession is coming. That's like saying a thunderstorm is coming. This is a natural part of economics. Recessions are a necessary part of growth, almost like growing pains. Now the real question is 'when will the recession happen.' However nobody truly knows that, so it's better to spend your efforts making sure you're prepared for when a recession occurs as opposed to worrying about when that will happen. Imagine a stock where the share price equals the earnings per share.  You pay say $100 for a share. In the next year, the company makes $100 per share. They can pay a $100 dividend, so now you have your money back, and you still own the share. Next year, they make $100 per share, pay a $100 dividend, so now you have your money back, plus $100 in your pocket, plus you own the share. Wow. What an incredible investment.