Types of Stocks
Posted by Gail | Filed under Investing
New Sticky Situation at the end. Also, Question 4 in our new feature on the Success Post called Thinking Things Through. Head on over and add your 2 bits. And remember to vote on this week’s poll.
There is a classification system that applies to all shares depending on the level of risk they carry. This classification ranges from “blue-chip” referring to well-established companies to “speculative” referring to companies whose performance tends to the volatile. Where a share falls on the “blue chip/speculative” scale depends on the company’s longevity, history, and past performance during different business cycles. Companies that have a good track record with steady performance are referred to as blue-chip. Companies with highly erratic earnings records, or no record of earnings at all, are referred to as speculative. They might be newly established with few tangible assets. Or it could be a company with a product that has not yet been proven but has huge potential. Typically, newly formed mining companies and new companies in the relatively young bio-technical industry are classified as speculative.
Blue-Chip Shares: This is the common stock for well-known national companies with a reputation for earnings growth and dividend increases. The most familiar names fall into this category: IBM, AT & T, GM. (See, I don’t even have to spell out their names and you know who they are.) While it’s been rumored that “blue chip” shares took their moniker from “Big Blue” who is a perfect example of one, that’s not so. The label actually comes from casinos where blue chips are the ones that are typically of greatest value. And we wonder why people keep comparing investing to gambling? Go figure. Of course, time and bad management have a way of bringing even the bluest companies to their knees. So, I’ll repeat the investing mantra once again: Past performance is no indication of future performance.
Income Shares: Shares of companies that have relatively stable growth in terms of sales, earnings and dividends are referred to as income shares because they generate a steady flow of income for investors. Dividend payouts are usually higher than the average current return in the market, though growth prospects may be somewhat lower. These types of stocks — utilities and regulated companies are good examples — used to be seen as less risky because they are less volatile. Deregulation has changed some of that. Alternatives such as Real Estate Investment Trusts (REITs) as the latest innovation in the income category. Income stocks tend to be interest rate sensitive. Inflation does them in too.
Cyclical Shares: Cyclical companies are those that are particularly sensitive to the general economy and to changes in the price of commodities. The share prices of companies that fall into this category move in and out of favour with their entire industry sector. Buy them at the right time and you can take advantage of enormous growth. Miss the boat and you’ll either have to take the loss or you’ll be stuck until the cycle comes round again. Cyclicals are the first to be affected when consumer spending falls off. They include automobile, machinery and construction industries. (A stock can have more than one moniker, as you’ve now see with a company like GM.) Another good example of a cyclical industry is the forest products industry. When the economy slumps, newspaper advertising drops sharply. Pulp and paper companies sell less newsprint, so their earnings drop. When the economy picks up, so does the demand for newsprint. Eventually, both earnings and share prices recover. Some industries are more sensitive to economic cycles than others. The airline industry has boom-and-bust cycles. Electronics go through big swings because introductions of new-generation chips cause enormous changes in profitability. If you’ve got the guts to buy early when the outlook is still bleak, you can enjoy a nice ride up on a cyclical stock.
Seasonal Shares: Some companies are affected by seasonal factors that create more product demand at certain times of the year. For example, while the brewing industry is a relatively stable one, sales tend to be higher during the summer months than during other periods of the year.
Defensive Shares: Defensive shares are those that are affected very little by down turns in the economy because they provide essential services or products to consumers. Banks are a great example of defensive shares. Regardless of what the economy does, people need a place to keep their money. Food companies, established pharmaceuticals and beverage makers are also defensive because we’ve all got to eat, and you’ll need a Coke to swallow your Aspirin. While these stocks weather downturns well, they tend to be poor performers when the markets heat up.
Micro-cap, Small-cap, Mid-cap, and Large-cap Shares: Market capitalization refers to the market value of a company’s outstanding equity. It is calculated by multiplying the price of the stock by the number of shares outstanding. The larger a company’s capitalization, the more heft or stability it has. Small-caps, on the other hand, tend to offer greater opportunity for spectacular growth. The classifications themselves may shift over time based on the performance of the markets. Where the categories fall is less important that understanding why the categories exist at all. Companies tend to perform differently as their size changes. The smaller the capitalization of a company, the less liquid that share tends to be. Since stocks move in cycles, there are periods when small caps outperform large caps and vice versa.
Next week: Picking Stocks
Last week: Technical Analysis
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Sticky Situation: Your mother-in-law wants to invite a bunch of your friends to your wedding, but you have a very strict budget. What do you say to her?
Hey, do you have a sticky situation you need help with? Send it to me at getgvo@gmail.com with SS in the subject line and we’ll see what everyone has to say about the best way to handle it.
August 24, 2010 at 7:38 am
This is simple…just say NO…or offer to let her pay!..lol…I’ve never been one to let others spend my money for me so to me this isn’t sticky at all…
When my husband and I got married, we booked the Church, booked the honeymoon and booked the private room at a hotel for dinner with our parents and siblings….THEN we told everyone the date and time…no fuss, no muss..
August 24, 2010 at 7:39 am
p.s. I can’t vote on the poll…it shows closed already….
August 24, 2010 at 7:43 am
For me, that’s not a sticky situation – I’d just say no – sorry! I had a situation in my wedding when I invited aunts and uncles, but not cousins (not in the budget and wanted a smaller wedding). My one aunt called and asked why her two sons were not invited, and could she bring them. I politely told her that we had only asked aunts and uncles and NO cousins were coming from either side. I said that if she had her kids come, others would feel slighted, so please not for them to come. She understood, and may have been disappointed, but the day was ours, not hers.
August 24, 2010 at 8:00 am
I am actually getting married in about 3 weeks. If a situation like this had come up I would have politely, but firmly, said no, we can not afford it, and let her know that if it was important to her that these people come than she could pay for it.
August 24, 2010 at 8:01 am
she wants to invite my friends to my wedding? I wonder why I haven’t invited my friends to my wedding. if I haven’t invited them then there must be a good reason I’d tell her that they don’t need to come.
regards,
Jason
August 24, 2010 at 8:22 am
Ha, we solved that issue by getting married at city hall and then having a nice dinner with just our immediate families and close friends (which still wound up being 30 people!). Have a nontraditional wedding, and these sorts of things just may not even come up.
If I had had a traditional wedding, I’d just say no, this is the guest list and it’s all we can afford, sorry. I have no problem standing up to my MIL when necessary(although I can’t imagine her asking, frankly, she’s a lovely woman and wouldn’t dream of doing such a thing).
August 24, 2010 at 8:23 am
Hmmm…when my finacé proposed years ago, we were both excited to start the planning process. Until I realized that his family was HUGE and that his mother AND step-mother felt we should invite them all – including family friends whom I had never met! (One of his cousins waited a year to save more so all the cousins could go to her wedding.)
I had always thought we would have a smallish wedding (I have 40 on my side) but I didn’t realize the extent to which his family (over 100 on his mother’s side, very few on his father’s and over 100 on his step-mother’s side) would want to be involved.
I have explained to his family (because he is too passive and timid) that we will likely have a destination wedding (that way I can invite everyone that we want to) and a house-warming party when we return. His step-mother said that we shouldn’t expect gifts from her family since they weren’t coming to the wedding! I reminded her it is OUR day and that we would rather a HOUSE than a wedding. And if they didn’t bring gifts, so be it. It wasn’t about the gifts, but about celebrating with those who couldn’t make it to the beach.
Many years later and still no plans in place…one day soon. And when they do come up, I will not be asking their input, rather it will be a decision for my other half and myself to make. If he feels (or members of his family feel) that the whole family (plus friends of the family) should be invited, I will let them know where to make the cheque out to.
It is a day for the couple to be – not for the family (extended) and friends to have a reason to party together (and give us a $20 bill). Yes, it has happened.
Thanks for letting me rant!
August 24, 2010 at 8:30 am
We went through this situation 8 years ago, but with my FIL and my Mom, but on a smaller scale; we purposely booked our reception with a room that had a max. capacity of 80 people and all but 4 people on our A-List RSVP’d that they were coming. We limited the guest list to immediate friends and family only. Small and intimate is what we wanted and that’s what we got. My Mom was fine with it; my FIL was a little put out, but we stood our ground. Only reason FIL wanted to invite the additional people was because he had been to all their weddings, and it was now “payback” time. I told him I wasn’t getting married for the money or gifts, and if that’s the only reason he wanted to invite them, too bad, so sad, we weren’t inviting them.
August 24, 2010 at 8:41 am
RE: Sticky Situation…
Easy… it wasn’t my mother-in-law paying, so her 2 cents didn’t count
However, we invited only aunts and uncles to the dinner, and immediate family, and only friends that were in the wedding party (with the exception of one of my cousins who travelled halfway around the world to come). Other cousins and friends were invited only to the church and reception. My family is small, and I only had the one cousin attending, but my DH’s family is quite a bit larger. One of DH’s aunt and uncle responded that they would be attending, but sent their sons in their place! To top it all off, they, neither aunt nor uncle nor cousins, even got us a gift or card! 18 years later, and still can’t let that one go…
August 24, 2010 at 9:41 am
When my husband and I got married, my mother-in-law insisted on inviting relatives on their side of the family who I had not met in the 3 years leading up to the wedding. We were on a strict budget so I told her that they were welcome but only if she was paying for them. This was fine with her.
Because of said budget, we couldn’t afford to feed all of our friends. We kept it just to really close friends for the dinner and everyone was welcome for the party after.
August 24, 2010 at 9:44 am
Sticky Situation: I ran into this problem with my mom, who wanted to invite everyone from a third cousin up (which was fine, until we ran into people I had never met). So we compromised – my Mom and Dad paid for the reception (drinks, dinner, and DJ) and got to invite anyone they wanted, and my husband and I paid for the rest. We managed to have an amazing wedding, and everyone was happy in the end
August 24, 2010 at 9:50 am
Thank youfor the breakdown of stocks Gail.
Very informative.
August 24, 2010 at 9:51 am
Hmmmm, another Kat on the board… LOL
Anyways — As it is my MIL, I would talk with my intended to find out his opinion on the people that she wanted to include (I’m going to assume that it is her friends and not my friends she is inviting, typo by Gail). Then I would let him handle it with his mom, only if it goes south from there would I put my two cents in.
It probably would not come up much for us however as our family is very strung out, and should we get hitched, we are leaning more towards the “destination wedding” and anyone wishing to shell out the dough to attend, can.
August 24, 2010 at 10:13 am
You say “no”, and politely explain your reasons. The choice of who to invite is the bride and groom’s, not the MIL. Unfortunately there’s too much of this “payback” mentality as well as some people’s wish to put on a bigger (but not better) production for their offspring than other relatives or friends have for theirs.
August 24, 2010 at 10:15 am
I’m getting married next year and my future in-laws are helping with the cost, so we’re allowing them to invite some of their friends. Family was obviously already on the list. But even their friends are limited, as they’re not helping THAT much! Just very close friends who know my fiance well and have met me.
August 24, 2010 at 10:35 am
I am with Jason on this if there were friends of mine I hadn’t invited I would have a good reason and my MIL would get a firm no thanks unless you foot their costs.
August 24, 2010 at 10:38 am
Where are these polls found?
August 24, 2010 at 10:59 am
as the member of a couple with the giant family where everyone comes to everything, this has been a sore point with my partner on occasion. family-only events at my house include cousins, cousins of cousins, etc, and that’s just how we are (and how i am)… so that needs to be factored into our wedding costs if the wedding is going to be reflective of who i am and how i celebrate the things that matter to me. i’d try to minimize the pain with my MIL by having her be part of the invitee review process, and make sure that she didn’t feel like no one from her side of the family was being represented or that my side was taking over. we’d go over the budget together so she could see we simply didn’t have the money for those people, and if she offers to pay for something (like photos or flowers) to free up some room, that’s great!
for me, weddings are all about the people who are there to celebrate it with you and i want the people there to enjoy themselves as much as i do, so i’d do whatever i could to make sure the people my MIL wanted are there… but i wouldn’t go into debt over it, so i’d ask for her help to make the numbers work and see what she suggests (short of disinviting people we want to invite!).
August 24, 2010 at 11:00 am
In my case the wedding was all about my MIL and FIL, not what my husband and I wanted. We wanted a pig roast in the cleaned up barn. Oh no…that was not acceptable. Our parents split the cost of the wedding, and my husband and I paid for the clothes, and flowers. His side of the family was huge (6 siblings with many children each), I have one brother. So for the supper we invited immediate family only for his side, and for my side a few of my close friends and cousins, and aunts/uncles. Everyone was welcome for the party afterward. My inlaws were a little put out, but I had to stand up for SOMETHING. Basically the whole wedding was based on what their expectations were.
August 24, 2010 at 11:02 am
@ Rosemary: the poll is found on the blog ‘home’ page, at the bottom right side, below the archives of previous blogs.
August 24, 2010 at 11:20 am
For the sticky situation, I would talk to my MIL to find out how important these people are to her. Are they like family? Or is it more like “It’d be so nice for them to see you in your dress…”. If it’s very important to her, I would go ahead and invite them, without sacrificing the budget. If we have to change the meal plan to sandwiches and champaigne instead of filet mingon and fancy wine, I’m willing to do that. I think weddings are about people and community, so I would take my family’s wishes into consideration as far as deciding who to invite. I can then choose my menu based on what I can afford to feed the number of planned guests.
Obviously, there’s a limit. I can’t afford even just cake and lemonade if there are a thousand plus guests. But there is a level of flexibility. People come first in the planning, then the rest.
August 24, 2010 at 2:38 pm
Had this situation only it was my mother and she doesn’t (and didn’t) have two nickels to rub together. We tried telling her no. We ended up going from 35 to 68 people and had to pay for it all ourselves. If his brother hadn’t of already eloped we would have. That’s how angry I was at my own mother. 26 years later I’ve ‘almost’ forgiven her. So any of you thinking of adding your two cents to your children’s weddings think about that first.
My son and his fiance have asked my opinion a few times on their wedding they are planning in 2 years. My response is always, it’s your wedding! If you’d like my opinion between two options fine but I’m not planning, inviting or otherwise inserting myself into the wedding. Still have great feelings for my mil (deceased) because she stayed out of it.
August 24, 2010 at 4:00 pm
Sticky Situation:
@Jason and Rosemary ~ think there is a typo – I’m taking the meaning that the MIL wanted to invite some of HER friends to YOUR wedding.
Didn’t have this problem. My parents paid for our wedding except my dress. 100 people/sit down roast beef dinner/reception/bar….$1,000. If you could see your faces! LOL….yes, it was back in olden times. My dress cost $69. I went to a bridal shop and saw a bridesmaid dress I liked – had them order it in white. Voila! My one attendant picked a bridesmaid dress out of her closet – she had recently been in 3 weddings. The men wore their good suits. Too funny – one brown, one navy and the grooms was grey. We didn’t care. There was a mix of relatives and friends – no hard feelings from anyone. Only thing that ticked me off were the people that RSVP’d that they were coming and didn’t. My parents had to pay for their meals anyway – there were 5 that did that.
When all is said and done – we are just as married as anyone else….41 years on Monday.
August 24, 2010 at 6:22 pm
Stressing over the guest list is sometimes a waste of energy because so many people don’t accept the invitation. It also depends on who’s paying. If the B&G are paying for it themselves, she could ask the MIL to wait until RSVPs start coming back and her friends can sit in for people who’ve declined. Otherwise, she’d have to offer up some money to accomodate them in the budget.
If the in-laws are actually footing part of the bill… then it’s reasonable that they would be inviting some friends.
August 24, 2010 at 6:27 pm
we had a big-ish wedding because we wanted to include everyone. We had a low-key cold buffet style meal at early afternoon instead of a hot multi-course dinner. that made it far more affordable. my in-laws did want to invite a few extra people (at least one couple I hadn’t met yet) and we were ok with that as the in-laws were helping with a large chunk of the food bill before the topic of extra people had even been raised. everyone was happy and we had a fun wedding without spending a fortune. we also had quite a few friends and relatives who helped make the day special using their gifts and talents so we didn’t walk away with a huge haul in gifts and cash but the wedding was easier to put together from a financial standpoint.
August 24, 2010 at 7:07 pm
Am I the only one that doesn’t seem to be able to vote on the poll anymore?
Also, the “scheduled blogger maintenance” screen is keeping me from seeing Gail’s daily posts until well into the afternoon everyday now! I think I am in a “no-fly-zone” of Gail’s website, and that makes me very very sad (I miss my daily virtual hug from her!).
August 24, 2010 at 7:13 pm
about the sticky situation… what is it about weddings that makes everyone so selfish? When we got married (16 years ago!) we were on an outrageuosly tight budget. We refused to aquire any debt for the “big day” because the goal was to be married, not pay for a wedding for the next 7 years! Anyways, I ended up with too many people wanting to be bridesmaids… very pushy. So I drew the line! I said NO to everyone, I limited the wedding party to family only. I hurt some feelings, but only temporarily. After they came to the wedding, they had to confess that they enjoyed being there better than anything.
It’s the bride and groom’s day, even if the mom is paying for the party, then she really can’t add to the guest list…. at least that’s what I think.
August 27, 2010 at 9:30 am
[...] Gail Vaz-Oxlade Making Money Make Sense. Types of stocks. “There is a classification system that applies to all shares depending on the level of risk they carry. This classification ranges from ‘blue-chip’ referring to well-established companies to ‘speculative’ referring to companies whose performance tends to the volatile.” [...]
December 16, 2011 at 2:40 pm
[...] Gail Vaz-Oxlade Making Money Make Sense. Types of stocks. “There is a classification system that applies to all shares depending on the level of risk they carry. This classification ranges from ‘blue-chip’ referring to well-established companies to ‘speculative’ referring to companies whose performance tends to the volatile.” [...]