What is a Stock?
It is the capital raised by a corporation through the issue of shares entitling holders to an
ownership interest
.

A stock (also known as an equity or a share) is a portion of the ownership of a corporation. A share in a corporation gives the owner of the stock a stake in the company and its profits. A stock is a share of ownership in a company. Stock is especially popular because it is relatively easy to transfer, relatively inexpensive, and offers limited liability.

Stocks are transferable shares of a corporation which an individual or firm purchases, becoming entitled then to dividends from the company’s profits and other rights of partial ownership, including the right to vote at stockholders’ meetings, which most corporations hold annually. Common stock is a class of corporate ownership usually entitled to vote for the board of directors and other issues of importance. Preferred stock is class of stock on which a company must pay a dividend before any dividend can be paid on the company's common stock. Preferred stock enjoys prior claim to company assets over common stock in the case of a bankruptcy.

You can choose from a variety of equity stocks to suit your investment objectives. There are four types of equity stocks:

Growth Stocks
Defensive Stocks
Cyclical Stocks
Discount Stocks


Growth Stocks:
Stocks of companies whose assets, sales, turnover, and profits are growing rapidly are appropriately called growth stocks. Rapid growth may be achieved by following an aggressive policy of expansion of profitable manufacturing facilities and widening the marketing network, or through diversification into profitable lines of activity.


Such companies are usually led by a very high growth- oriented entreprenuerial type of management. They enjoy full advantage of tax incentives avavilable for growth through expansion, modernisation , diversification into profitable lines of activity.

Bajaj Auto is a classic example of a growth stock which has achieved phenomenal success by concentrating all its energies into the two-wheeler and three-wheeler auto market by refusing to diversify into unrelated areas.

Characteristics of Growth Stocks:
The chaarcteristics of Growth stocks are
1. Managerial excellence:
The most important reason for the long term success of growth stocks is that they are managed much better than others. According to research study of excellent companies, there are eight common characteristics of excellence in management.
2. Reputation of management:
The reputation of management of growth stock companies is high among various stockholders like investors, consumers, suppliers, etc.,
3.A leading position in an attractive industry:
Growth stock companies enjoy a leading position in an attractive industry. Some industries like tea, bearings, aluminium, etc., enjoy a high gross profit margin.
4. Excellent products and services:
Growth stock companies offer excellent products and services. They realise that their name is at stake behind each product. They nurture and promise their brand names vigorously. They establish a strong market identity and matching brand loyalty. In turn they convert their products into profits.
5. Substantial profits and cash flows:
The growth stock companies make substantial profits and enjoy healthy cash flows. Companies pay taxes and plough back profits into their reserves to build internal resilience and strength.
6. Innovations:
The growth stock companies are aggressive innovators of products and services. They spend heavily on research and development and introduce new products and services based on customer needs. They innovate new and improved ways of manufacturing in a more cost-effective manner.
7.Strong competitive advantages:
The growth stock companies identify their ' core competence ' , what it is that they can do best, and focus their energies in that area.

Defensive Stocks:
These are traditional companies engaged in stable and mature industries. Their earnings do not fluctuate very widely from year to year. Over the years they seem to follow a steady practise for dividend payments. They do not normally skip dividends. The market prices of defensive stocks tend to fluctuate within a narrow range. The dividend yield usually works out higher than that of growth shares.

Cyclical Stocks:
These are the stocks of companies which are engaged in businesses susceptible to fluctuations caused by economic and trade cycles. They do extremely well during a boom period but hit the bottom during recessions. Due to this cyclical nature of fortunes of such industries, their share prices also go up and down in a cyclical manner. Examples of cyclical stocks would be those of companies in shipping, plantation, sugar, machine tools and capital goods industries.

Discount Stocks:
Discount stocks are those whose market price is lower than the par value or book value. When such companies begin turning the corner or are being taken over by other companies, shrewd bargain-hunters pick up their stocks at low prices and reap a bargain-hunters pick up their stocks at low prices and reap a fortune when the anticipated turn of events take place. Some blue chips of today were once available as discount stocks.

The Life cycle of a stock
The world of business is highly dynamic. The enironment keeps changing continuously. For example, the computer industry was extremely profitable sometime ago, but as a result of excessive competition and price wars, the profits of hardware and software companies declined sharply during 1988-90.

The aluminium industry was not in good shape before the price decontrol in 1989. Thereafter, the industry recovered remarkably. Thus the cycle goes on - up , down and up again. It is necessary to remember that every share is likely to go through a typical life cycle.

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