Investment Vehicles That Drive Your Portfolio – Stocks chapter 3, Part I

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The investment market is made up of securities that cover a full spectrum of asset classes. Each asset class has a unique set of characteristics that generates revenue in the form of dividend and price appreciation. These stocks add value to your investment portfolio and increase the value of your investment portfolio. The choice is yours on how and where to start.

The Stock Market (Equities)

What is a Stock?

A stock is a security that gives you:

  • Ownership (equity) in a company.
  • A share in the profits of the company (dividend payments). Dividend payments can come quarterly, semi-annually or annually. Dividends can also be used as supplemental income during your retirement years.
  • Voting rights on management decisions of the company (Called proxies).

If you own a stock, you’re a shareholder of record and can attend shareholders meeting. You have a right to vote on issues that come before the Board of Directors and shareholders. Stocks have provided investors with annualized returns from 10% to 12%. Stocks have considerable price volatility (ups and downs) of market movement. Long-term investors understand the risks/return of trade-offs and generate rewards that are well worth the wait.

Here are the most common types of stocks offered in the market place.

Growth Stocks: Growth stocks seldom pay dividends but grow in value. Growth companies reinvest their earnings back into themselves to keep up with a rapidly competitive market. They grow in value due to stock splitting and price appreciation. Stocks in this category are companies with new and exciting breakthrough products.

Value Stocks: Value stocks sell at a lower price and are considered undervalued by investors. Such stocks pay high dividends. Their sale prices are lower, but they have high earnings (low price to earnings ratios). As a result, undervalued stocks grow in price appreciation and in some cases, pay a nice dividend.

Core Stocks: Core stocks stabilize the portfolio. These types of stocks tend to be in the Standard & Poor’s top 100 stocks. These are good solid companies that have worldly household appeal and pay consistent dividends.

Emerging Market Stocks: Emerging markets are stocks that have great potential for growth. They do not have the efficiency of a fully developed market. Nor do they have highly developed accounting and security regulations like the economies of the United States and Europe. These stocks are just beginning to establish a solid financial infrastructure.

Developing Market Stocks: A developing market is the opposite of a Developed Market like the U.S. They do not have the financial infrastructure you find in an Emerging Market. Investors are attracted to these markets because their growth potential is like an Emerging Market.

Global Stocks: (U.S. versus International): The Global stock market is divided into three components:

  • U.S. stocks held within the confines of the United States.
  • International stocks which are held outside of the United States.
  • Global stocks which includes both (U.S. and International).

Alternative Investments: This is a term used to describe securities that fall outside of the norm of the typical stocks stated above. These securities are invested strategically in the portfolio based on specific goals and objectives. The two most commonly used are Real Estate and Derivative Securities.

  • Real Estate are hard assets:
      • Office properties
      • Retail properties
      • Industrial properties
      • Multi-family residential properties
  • Derivative Securities fall into categories called Futures Contracts, Forward Contracts, Swaps, Call and Put Options. They are traded on security exchanges like any other stock.
      • Derivative securities are contracts that value (price) an underlying asset, but not the asset itself. Example: General Motors (GM) is a stock, but its pricing can be traded based on its value from one day to the next (mark to market pricing). You are not buying the GM stock, you are purchasing the change in the underlying price associated with it. There is a big difference between the value of an asset and the pricing of the asset. Think of GM as the asset and the price change of GM as a totally thing.

Derivatives Warning: You should not invest in these types of instruments unless you really understand the risks associated with them! There are specialty books on these securities. For more information go to your local bookstore, library or the internet.

Next we will talk about Managers and their investment styles and strategies.

Until tomorrow, love hugs!

Robert L. Woods (a.k.a. R. LaMont W.)

Robert L Woods

Robert L Woods

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About Me

Robert L. Woods is the retired partner of the Institute For Fiduciary Education ( that provided investment seminars for public and private pension funds, endowments and institutional fund managers. He spent 28 years working for the State of California, as a budget and financial analyst which includes 16 years as an Investment Officer for the California State Teachers’ Retirement System (CalSTRS). At CalSTRS, he established it as one of the nation’s first institutional home loan programs with a down payment assistance component. He also spent 13 years on the Board of Trustees for the Sacramento County Employees Retirement System (SCERS). He was a Trustee with the University of California, Davis, Cal Aggie Alumni Association and a member of the Chancellor’s Council on Community & Diversity. He is a Life Member: Phi Beta Sigma Fraternity, Inc., Theta Gamma Sigma Chapter, Sacramento, CA.

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