Lesson 1: Equities Flashcards
Proxy Statement
A document that informs shareholders about meetings and votes
Common Stock
Ownership of a company
- dividends: type of return paid quarterly based off of company earnings
- capital gain: returns based on share appreciation
- most you can lose is the value of the stock
Treasury Stock
common or preferred shares bought back (or not sold) by the issuing company
- treasury stock does not pay dividends or grant voting rights
Cumulative Voting
You can pool all your votes (one per board position per share) and allocate them to wherever you want
Statutory Voting
You can cast up to the number of shares you own per board seat
Liquidation Priority
(Double check this)
- Bondholders
- Preferred stockholders
- Common stockholders
American Depositary Receipts (ADRs)
ADRs permit domestic (US) trading of foreign stock
- a foreign company sells American Depositary Shares (ADS) to a US Bank that then issues out/sells ADRs to US investors
- this allows US investors to get exposure to foreign markets without owning the actual foreign stock
Preferred Stock
An equity security providing regular, steady income
- you get dividends before common stock owners, but you DO NOT get voting rights
Types of Preferred Stock
Straight Preferred: default type of preferred stock, they have no special features described below
Cumulative: gives shareholders the right to receive dividends in arrears (receive missed dividend payments)
Participating: can allow a holder to conditionally receive an extra dividend payment
Convertible: allows the option of converting from preferred to common based on a defined ratio based on par value
Callable: can be repurchased by the issuing company at its own discretion (bc of this call risk, it pays higher dividends)
Adjustable: pays dividends based on an underlying benchmark (usually US treasury bills)
Penny Stocks
Stocks with less than $5 per share value and quoted OTC (unlisted)
Unlisted (Over the Counter)
- Meaning not traded on any exchange (NYSE, NASDAQ, etc)
- very risky, illiquid, volatile, and possibly fraudulent
- classified as common stock
Pre-Emptive Rights
Give shareholders the option to buy new issued stocks to avoid diluting their position (at a discounted price)
Warrants
- Long term instrument that lets you buy the issuer’s stock at a fixed price at some later date
- Usually added as a sweetener to a deal
- sort of like an OTC call option
Declaration Date
The date at which the board declares a dividend
Ex-Date
The first date a security trades without the dividend included
Meaning if you buy on or after the ex-date, you will not receive the dividend (buyers are excluded from the dividend)
Same as the Record date for regular way trades (T+1)
Record Date
The date (determined by the board on the Declaration date) that an investor must be an owner of the stock to receive the dividend
This is important because of settlement dates. If your trade doesn’t settle until after the record date, then you would not be an owner of the stock at that time and therefore would not receive the dividend
Same as the ex-date for regular way trades (T+1)
Payment Date
The day the dividend is paid
T+1 Settlement
The typical way of settling trades. If you trade on day T, you don’t settle until day T+1 (ie the next business date is when you gain actual ownership of the stock)
Stock Split
Either a splitting or reverse splitting of the share cost
Does not create or destroy value, they are artificial accounting adjustments
ex: 2-for-1 split of $20 stock converts every $20 stock into 2 $10 stocks
ex: 1-for-2 reverse split of a $10 stock creates one $20 share for every two $10 shares
Cash Dividend vs Stock Dividend
CD: actual value received, so taxed (even if auto-reinvested)
SD: untaxed bc no change in economic value
Short Sale
The sale of a stock that the client does not own (this is a bearish take because you want the value to go down)
VERY Risky (theoretically unlimited downside)
Bearish Sentiment
Thinking that the market/stock will go down in price (think “bear down”)
Describe a Short Sale (assume 100 shares at $50/share)
Someone lends you (the short seller) 100 shares. You then sell these shares to a buyer for $50/share. They now own those 100 shares and you have $5,000 in cash. At some point in the future you are obligated to return 100 shares back to the lender. If the price goes down (to say $40/share), you buy shares from someone, return them to the lender, and pocket the extra $1,000. If the stock goes up (say to $60/share) you still have to go out and buy them to return to the lender, and now you’re down $1,000
Blue Chip Stocks
Stocks of large companies with a long history of steady earnings and dividend payments
