Stock market

: 5/21

There is less glamour, but also less risk, in what we will callfor lack of a better phrase"moderate-growth" stocks. Typically, these might be stocks that do not sell at premium, but where it appears that the company's earnings will grow at a faster-than-average rate for its industry. The trick, of course, is in forecasting which companies really will show better-than-average growth; but even if the forecast is wrong, the risk should not be great, assuming that the price was fair to begin with.

There's a broad category of stocks that has no particular name but that is attractive to many investors, especially those who prefer to stay on the conservative side. These are stocks of companies that are not glamorous, but that grow in line with the economy. Some examples are food companies, beverage companies, paper and packaging manufacturers, retail stores, and many companies in assorted consumer fields.

As long as the economy is healthy and growing, these companies are perfectly reasonable investments; and at certain times when everyone is interested in "glamour" stocks, these "non-glamour" issues may be neglected and available at bargain prices. Their growth may not be rapid, but it usually is reasonably consistent. Also, since these companies generally do not need to plow all their earnings back into the business, they tend to pay sizable dividends to their stockholders. In addition to the real growth that these companies achieve, their values should adjust upward over time in line with inflationa general advantage of common stocks that is worth repeating.

3.2 Cyclical Stocks.

These are stocks of companies that do not show any clear growth trend, but where the stocks fluctuate in line with the business cycle (prosperity and recession) or some other recognizable pattern. Obviously, one can make money if he buys these near the bottom of a price cycle and sells near the top. But the bottoms and tops can be hard to recognize when they occur; and sometimes, when you think that a stock is near the bottom of a cycle, it may instead be in a process of long-term decline.

3.3 Special Situations.

Theres a type of investment that professionals usually refer to as special situations. These are cases where some particular corporate developmentperhaps a merger, change of control, sale of property, etc. seems likely to raise the value of a stock. Special situation investments may be less affected by general stock market movements than the average stock investment; but if the expected development doesnt occur, an investor may suffer a loss, sometimes sizable. Here the investor has to judge the odds of the expected developments actually coming to pass.


A preferred stock is a stock which bears some resemblances to a bond (see below). A preferred stockholder is entitled to dividends at a specified rate, and these dividends must be paid before any dividends can be paid on the company's common stock. In most cases the preferred dividend is cumulative, which means that if it isn't paid in a given year, it is owed by the company to the preferred stockholder. If the corporation is sold or liquidates, the preferred stockholders have a claim on a certain portion of the assets ahead of the common stockholders. But while a bond is scheduled to be redeemed by the corporation on a certain "maturity" date, a preferred stock is ordinarily a permanent part of the corporation's capital structure. In exchange for receiving an assured dividend, the preferred stockholder generally does not share in the progress of the company; the preferred stock is only entitled to the fixed dividend and no more (except in a small minority of cases where the preferred stock is "participating" and receives higher dividends on some basis as the company's earnings grow).

: 3/03/2010