Equity securities


1. What Are Equity Securities?

Equity securities represent ownership in a company. When you buy a stock, you become a shareholder, meaning you own a piece of the business.

Common Stocks: Most widely held. Gives voting rights + dividends (if declared).

Preferred Stocks: No voting rights, but fixed dividends and higher claim on assets.



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2. Key Terms You Must Know

Shares Outstanding – Total shares issued by a company.

Market Capitalization = Share Price × Shares Outstanding.

Dividend – Portion of earnings paid to shareholders.

Earnings Per Share (EPS) = Net Income / Shares Outstanding.

Price-to-Earnings Ratio (P/E) = Share Price / EPS — used to value stocks.



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3. Stock Price Drivers

Earnings Growth – Strong earnings = potential for price appreciation.

Market Sentiment – Investor mood, news, and trends influence prices.

Macroeconomic Factors – Interest rates, inflation, GDP growth.

Company Fundamentals – Revenue, profit margins, competitive edge.



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4. Types of Equity Investing

Growth Investing – Focus on companies expected to grow fast (high P/E).

Value Investing – Buying undervalued companies (low P/E, solid fundamentals).

Dividend Investing – Targeting companies with consistent payouts.

Index Investing – Passive strategy via ETFs like S&P 500.



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5. Risk & Return

Higher risk, higher potential return than fixed income.

Risks include:

Market Risk – Overall market downturn.

Company-Specific Risk – Bad management, poor earnings.

Liquidity Risk – Difficulty selling the stock quickly.




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6. Primary vs. Secondary Markets

Primary Market – Where companies raise funds (e.g., IPOs).

Secondary Market – Where investors trade stocks (e.g., stock exchanges like NYSE, NASDAQ).



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7. Fundamental & Technical Analysis (Basics)

Fundamental Analysis – Analyze financials, ratios, management, etc.

Technical Analysis – Study price charts, patterns, volume trends.


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