Stocks

A common stock is a type of security that represents a share of ownership in a company. When you buy a stock, you become a part-owner of that company. Companies issue stocks to raise money to fund operations, expand their business, or invest in new projects. For example, if a company has 100,000 shares, and you buy 1,000 of them, you own 1% of the company. Owning stocks allows you to earn more from the company's growth and gives you shareholder voting rights. Alternative names include shares and equity.

Stockholders, or shareholders, can primarily make money in 2 ways

Share appreciation. When a company does well financially or becomes more desirable, the price of its stock can increase. This allows investors to sell their shares to other investors for more than they paid.

Dividends. Some companies may decide to share a portion of their profits with investors through cash payments called dividends. A dividend yield is expressed as a percentage, often 1% to 3%. It is a calculation based off of the annualized dividend payout of a stock compared to the stock price. Companies may pay dividends one quarter and skip the next, depending on their goals and financial situation. Keep in mind that stock values don't always go up. Share prices can also fall, leaving investors with stocks worth (sometimes a lot) less than they paid for them.

Categories of Stocks

Large-Cap Stocks: Stocks with a market capitalization above $10 billion are considered large-cap. They have a strong financial reputation, steady growth, and usually pay dividends, making them less risky than medium- and small-cap stocks. To calculate a company’s market cap, multiply the number of outstanding common stock shares by the current stock price.
- Examples such as Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Google (GOOG), Visa (V)

Mid-Cap Stocks: Mid-cap stocks have a market cap between $2 billion and $10 billion. These companies are often well-established but may experience high growth as they increase their market share or competitiveness. While mid-cap stocks are riskier than large-cap stocks but offer greater growth potential, they’re less risky than small-cap stocks.
- Examples such as Sirius XM (SIRI), Abercrombie & Fitch Co. (ANF), Roku (Roku)

Small-cap Stocks: Stocks, with a market capitalization of $300 million to $2 billion, are often young companies in emerging or niche industries. They have higher upside potential but a greater risk of loss, especially during downturns. They appeal to high-risk investors.
- Examples such as Quince Therapeutics (QNCX), Serve Robotics (SERV)

Blue-chip Stocks: Stocks named after the most valuable poker chip, are large, well-established companies that lead their industries. There’s no strict definition, but some consider stocks blue-chip if included in a specific index or based on dividend or market cap. Generally, they’re less risky with a strong financial track record and regular dividends. Consider them if you have low-risk tolerance or want to diversify with riskier stocks.
- Examples such as Coca-Cola (KO), Johnson & Johnson (JNJ), Procter & Gamble (PG), Walmart Inc. (WMT)

Growth stocks: Stocks as their name suggests, have prices appreciating faster than the market average. They often don’t pay dividends but invest in growth, potentially offering better returns through price appreciation. However, they may be more susceptible to downturns, making them riskier than blue-chip stocks. Consider them if you have moderate risk tolerance.
- Examples such as Carvana Co. (CVNA), Palantir Technologies Inc. (PLTR), Arm Holdings plc (ARM)

Income stocks, as their name implies, focus on generating income. They may pay dividends or have other income-generating mechanisms. They’re generally less risky than growth stocks but may offer lower returns. Consider them if you prioritize income generation. While all companies pay dividends, income stocks are larger companies that pay them regularly, making them less risky than growth stocks. Consider income stocks if you want to minimize risk and receive consistent income from investments.
- Examples such as Exxon Mobil (XOM) - Dividend yield: 3.32%., AT&T (T) - Dividend yield: 4.87%., Telus Corporation (T.TO)- Dividend yield: 6.5%., Royal Bank of Canada - Dividend yield: 3.4%.

Value stocks: These are stocks that the market is underestimating. It's trading at a price lower than what the company's actual value suggests. Value investors look for these undervalued stocks, hoping to buy them at a discount and sell them later for a profit when the market realizes their true worth. Imagine you're shopping at a garage sale. You find a beautiful vase that's labelled $20, but you know it's actually worth $50. That's kind of like a value stock.
- Examples such as Cisco (CSCO), Ford (F), Micron (MU), Apple (AAPL)

Penny stocks: These are companies with low or no earnings, often selling for under $1 but sometimes trading as high as $5. Due to their lack of transparency on major stock exchanges, they’re highly speculative and best avoided unless you’re an experienced investor with a high-risk tolerance.

Cyclical stocks: Perform well during economic growth and poorly during downturns. Companies offering products and services consumers cut back on during recessions, like airlines, retailers, and restaurants, typically have cyclical stocks. Cyclical stocks can be a good buy during economic recovery or a suitable fit for long-term investors with short-term volatility tolerance. Defensive stocks are more resilient to economic downturns or market volatility because they offer essential goods and services like healthcare, utilities, groceries, and pharmaceuticals. Consider investing in defensive stocks if you have low-risk tolerance or anticipate market downturns.
- Examples such as Royal Caribbean Group (RCL), Ralph Lauren Corporation (RL) , Home Depot (HD)

Pros and Cons of Investing in Stocks

Pros

Potential for High Returns: Historically, stocks have provided higher returns compared to other investments like bonds or savings accounts, especially over the long term.
Ownership in a Company: Buying stocks gives you partial ownership in a company, along with the potential to benefit from its growth and success.
Liquidity: Stocks are traded on exchanges, making it easy to buy or sell them quickly compared to other investments like real estate.
Dividend Income: Many stocks pay dividends, providing regular income in addition to capital appreciation.
Diversification Opportunities: You can invest in stocks across various industries, sectors, and geographies to spread risk.
Accessibility: Online brokerages make it easy and affordable to invest in stocks with minimal capital. Wealthsimple in Canada and Robinhood for example allow investors to buy partial shares, also known as fractional shares, of stocks and ETFs e.g if a stock is priced at $1,000, an investor with $250 to invest can buy 10% of the stock

Cons

Market Volatility: Stock prices can fluctuate dramatically in the short term due to market sentiment, news, or economic factors, leading to potential losses.
Risk of Losing Capital: There’s always a risk that a company’s stock value could drop significantly or even become worthless if the company performs poorly or goes bankrupt.
Emotional Decision-Making: Market swings can lead investors to panic and make irrational decisions, like selling low or buying high.
Time and Knowledge Required: Successful stock investing often requires research, understanding market trends, and staying updated on economic conditions.
No Guaranteed Returns: Unlike bonds or savings accounts, stocks don’t guarantee returns, and some companies may not pay dividends.
Fees and Taxes: While trading costs have decreased, there may still be fees for buying, selling, or holding stocks. Capital gains taxes also apply when you sell stocks at a profit.

Is Investing in Stocks Right for You?

Stocks are ideal for investors seeking long-term growth and willing to tolerate short-term volatility. However, they might not suit those who need stable returns or are risk-averse. A balanced approach, combining stocks with other asset classes, can help manage risks while achieving financial goals.

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See below how some of the most popular Technology, Financial & Services stocks have performed