Owning Stocks

Key Takeaways

• Companies go public to raise capital to finance growth by selling equity shares in the public markets.
• A primary market transaction happens between the original issuer and buyer.
• Secondary market transactions are between all subsequent sellers and buyers.
• The secondary market lowers risk and transaction costs by increasing liquidity.
• Shares are authorized and issued and then become outstanding or publicly available.

• Equity securities may be common or preferred stock, differing by

  • the assignment of voting rights,
  • dividend obligations,
  • claims in case of bankruptcy,
  • risk.
• Common stocks have less predictable income, whereas most preferred stocks have fixed-rate cumulative dividends.
• ADRs represent foreign shares traded in U.S. markets, lowering risks, such as currency risks, and transaction costs for U.S. investors.