Wealth stays with you forever if you how to use it and have an understanding of the word “Enough”. This statement is explained in the New York bestseller “ The Psychology of Money” by Morgan Housel. This understanding of enough decides the life further.
As you came across stocks and the stock market several times, you must have cleared your concept of buying or selling stocks. The stock from certain companies is bought and sold and earns returns. You also become the shareholder of the company. This eventually makes you powerful in raising your opinion and operation management in the very company.
This development will not only raise your returns but also affect in rising country’s economy. The company, on the other hand, raises money by selling shares to the general public. They do so by trading stocks on the stock exchange. Now that the agenda is clear, let us know how many types of stocks can investors prevail.
05 Different Types Of Stocks Every Investor Should Know
1. Based on the company (Market Capitalization)
Categorizing such stocks is done in terms of the market value of the total company’s share. This way any company’s market capitalization is divided into three types of stocks: small-cap, medium-cap, and large-cap.
Small-cap in market capitalization are the stocks with the smallest values. The smaller the company’s size, the smaller will be the cap stock. Small-cap is beneficial in long run for the investors. Such kinds of companies with chances of growing in the future. Investors can get a good deal by buying the stock at a minimum price to get high returns in the future. Investors can buy small-cap stocks of the company with a market capitalization of the range of Rs. 250 crores.
- Medium Cap
In such kinds of the cap, the company provides medium cap stocks to the investors. The market capitalization starts from Rs. 250 crore to Rs. 4000 crores. Investing in such a cap comes with greater returns and higher stability as compared to small-cap.
- Large Cap
In comparison to other kinds of caps, the larger cap comes with huge cash reserves at its disposal. Although, it comes with a disadvantage that it might under perform sometimes as compared to small-cap. Investors can gain huge dividends than any other cap.
2. Based on Industry
These kinds of stocks are categorized in terms of sector or industry they fall under. If you choose to buy cosmetics stock, you will go for companies like Nykaa, Mamaearth, and Kay Beauty. Categorizing this way becomes tiring as it is not s easy sometimes to predict the nature of the business model.
3. Based on the Business cycle.
This type of stock is divided into two types again that is: cyclic and non-cyclic.
- Cyclical Stocks
Cyclical stocks run parallel to market performance. For this, the economy and stocks remain proportional to one another. Business models like automobile, cosmetics, construction, hotels, tour, and travels on and on are a few examples of such kinds of stocks.
- Non- Cyclical Stocks
These are stocks known to be unstoppable or defensive as the revenue growth is unaffected by any means of downfall. They tend to grow in the depression too. They come to this category by the goods they sell, whose demand never goes out. Companies manufacturing Tobacco, Alcohol come into this sector.
4. Based on Investment Cycle
The investment stock on such basis is divided into three types:
- Growth Stocks
Investing in stocks that tend to give high growth are termed growth stocks. This type of stock gives a thrill to investors to invest in and get high returns in a short time.
- Value Stocks
The growth rate of such kind of stock is less than a growth stock. The market pricing of such stocks is less as per the true value which gives an advantage.
- Dividend Stocks
The stock here has constant returns and investors investing here receive regular income gains. Dividend stocks pay investors steady and huge increasing dividends.
5. Based on Location
These stocks are bought by keeping location as the main criteria. The investors, as well as the company, match the locations to buy the stocks. If the investor plans to buy stock from the same country as the company situated, such stock is called domestic stocks. Also, if investors and the location of the company are in different countries, such stock is called international stocks.
5 Tips To Choose The Best Type Of Stock.
While going to search for the best-suited stock to buy. Learn a few tips that might help to choose the right one for you.
Fundamentals of the company
Before planning to invest in stocks, learn the background and analyze the company and its financial aspects. Revenue, earnings, and future growth should be considered of the company. Understand the owner’s stock and stock owned by the shareholders of the company. Take into consideration the size of the company as per its market value.
Knowledge of products and services offered
If investors understand what offerings are from a company, they can easily decide upon the stock they want to invest in. So, it is essential to know about the products and the services offered by the company.
Future of the company
Always look for the growth potential of the company in the future while investing in the stock of the company. Never go for the company whose stock does not seem to flourish in the near future. Companies that have a future and run for the next 15-20 years in huge success is the company you should invest in.
USP of the Company
Always try to analyze the Unique Selling Point of the business model beforehand. Make sure the company you choose to invest in is outstanding that their competitors.
Take note to always look into the financial documents of the company you wanted to invest in. The company should not be in any kind of debt either a huge debt or a smaller one. Avoid investing in Non-performing assets that are provided by banking sectors. Such companies with huge debt can mislead your investments path.
Think wisely before investing in any type of stock. Learn its curve and performance, your suitability, and then invest. HAPPY INVESTING!