Home Advantages and Disadvantages 7 Disadvantages and Advantages of Common Stocks

7 Disadvantages and Advantages of Common Stocks

Common stocks are one of the most used stocks in the public trading market. This is when large corporations and businesses, whose company is public, releases a certain amount of stocks, or pieces of their company, to the public. This gives people who do not have the funds to buy large into big businesses to still be a part of the action. Common stocks are traded, sold, and regulated by the stock exchange and have the ability to bring in some big returns. However, they also have the ability to go very wrong as well.

The Advantages of Common Stocks

1. You Can Limit Your Loss
Investing can be very risky business, which is what draws people away from it. With common stocks, you have full control over how much you could lose. The only amount that you are putting up, is what ever your initial investment is, an advantages that is hard to overlook when it comes to stock investing.

2. They’re Easy To Handle
Common stocks are liquid stocks from companies, which means that they can be very easily bought, sold, and traded. Not only is it simple, but it is also done quickly. The stocks can be bought at a very fair price because of this fact.

3. No Limit On Gains
While you can limit your losses, one thing that makes common stocks so powerful is that you cannot limit how much you earn. Many people have been able to come out very well after investing in basic common stock options.

4. Allows Small Players to Make Big Moves
Not everyone has the ability to buy into a big time company, which is what many people believe is the only way to make money investing. Common stocks are offered at a very reasonable price, which allows even the normal person to get a piece of an up and coming businesses hype.

The Disadvantages of Common Stocks

1. You’re Last In Line
There is a certain pecking order when it comes to investments. The big dogs will always be paid first, because they have the biggest impact in the company. When a company begins to go under, they will liquidate all of their assets. This typically means that the common stock holders will lose all of the investments that they have made.

2. You Have No Control
The only way that a common stock holder has any say in the businesses practice of the business in which they invested is if they own the large majority of the stocks that where made available. When someone puts their own money into something, they typically want to have an understanding of how the company has run, or at least a say in it. Common stock holders, however, have absolutely no control over what happens with the business or how it is ran.

3. Accepting The Risk
With common stocks you have to understand the fact that it is a risky business. By investing into common stocks you are accepting the fact that at any point your investments can be lost and you will lose all of the money that you invested.

Important Facts About Common Stocks

  • Berkshire Hathaway, which holds many well known companies underneath it’s umbrella, has had one of the highest single stock prices of all time at over three thousand dollars.
  • Phillip Fisher, a renowned investment expert, has put together a comprehensive list of the most important 15 things to look at when considering to invest in a stock.
  • American Express has been long known as the best stock investment to make, this is because of their low costs and high profit business models.