| Stocks 2 Essay, Research Paper
Stocks are shares in a company. When you
invest in a company’s stock or buy its shares,
you own part of a company as demonstrated
when Lemo sold half of its ownership or
stocks to Tom. If the company makes money,
your stock will increase in value. But, just as
in short-term investment and bonds, there are
pros and cons to stock investments.
Advantages
Stocks have a long historical track record
of outperforming other investments, such as bank deposits, money-market funds,
CDs, bonds, real estate, and commodities. See the chart below for a comparison
from 1945 to 1994.
A stockholder or shareholder has voting rights that bondholders and bank
depositors do not have.
Disadvantages
Stock prices often go up and down. They are never guaranteed.
A shareholder may lose part or all of his money.
Comparison of Annual Rates of Return on Selected Investments
(%)
1945 – 1994
1984 – 1994
1989 – 1994
Inflation
4.4
3.6
3.5
S & P 500
11.9
14.4
8.7
U.S. Treasury Bills
4.7
5.8
4.7
U.S. Govt Bond
5.0
11.9
8.3
Corporate Bond
5.3
11.6
8.4
Residential Housing
N/A
4.3
2.9
Gold
6.4
0.7
0.1
Silver
4.6
-4.2
-0.8
Source: Ibbotson Associates Annual Yearbook, Ibbotson Associates, 1995.
Stocks : The Highest Performer Over Time
In the long run, stocks have beaten alternative investments such as bank accounts,
bonds, real estate, and commodities. A Chicago consulting firm, Ibbotson
Associates, has compiled data to show that stocks are the way to go. As shown in
the chart below, stocks, represented by the Standard & Poors 500, doubled the
compound annual return of T-bonds issued in 1926.
Stock Ownership
If you buy a share or shares of stock in
a public company, you become a part
owner of that company. As a
shareholder of one share of Microsoft,
you enjoy the same basic privileges and
rights as Bill Gates who owns millions
of shares.
As a shareholder, you have the
privilege to receive quarterly reports
and an annual report informing you of
the financial health of the company.
These reports are just like report cards
you receive from school. The quarterly
reports tell how much money the
company has made or lost and business
activities during the reporting period.
The annual report is a combination of
all quarterly reports and is often printed
with fancy charts and photographs. It
gives detailed business and financial information about the company. As a
shareholder, every year you ll be invited to attend the annual shareholders meeting,
where you can ask Mr. Gates questions about Microsoft.
In addition, you will have the right to vote for Microsoft s board of directors, the
shareholders representatives who keep track of the important issues of the
company. They will, in turn, hire officers such as Chairman Gates to run the
company.
Most companies use a one-vote-one-share system. Even though your one share of
Microsoft does not count much against Mr. Gates s millions of votes, the company
takes each vote seriously. If you cannot go to the annual shareholder s meeting, they
will send you an absentee ballot.
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