Probably one of the most exciting yet dangerous opportunities in the stock market is new issues, the initial public offerings (IPOs) of former privately held companies. Such companies usually “go public” with great fanfare and hype, which can make their stock prices soar immediately after they begin trading.
In the most famous case, when Genentech, the first biotechnology company to go public, made its offering at $35 a share in the early 1980s, its stock soared to more than $80 a share by the end of the first day of trading.
The new issues market is extremely sensitive to the general direction of the stock market. When stock prices are high and rising and investors are enthusiastic, many new issues go public. When prices are low and depressed and no one wants to hear about stocks, it is almost impossible to sell a new issue.
Finance
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As a shareholder, you are also entitled to receive quarterly updates on how your company is doing. You will be mailed a report that tells you whether profits were up or down and what other major corporate developments occurred in the last three months. You will also get a more detailed annual report outlining how the numbers for the latest year compare with prior years, as well as the company’s plan for the future. You will also be invited to vote at the firm’s annual meeting, either in person at the meeting or by a mail proxy ballot. You will vote on important matters, such as whether a major acquisition should be completed. At most companies, you get one vote for every share you own. So unless you own an enormous number of shares, you shouldn’t expect to have much influence over the company’s strategic direction. For the most part, you are along for the ride while the professionals running the company do their best to maximize profits.
In addition to the profit potential from a rising share price, you can earn money from stocks by collecting dividends. If the corporation is profitable and the board of directors decides it is prudent, the firm will send you a quarterly check for your piece of the profits, known as a dividend. Dividends are normally paid by large, well-established companies that are sure they will achieve a certain level of profit each year. Smaller and newer firms usually do not pay dividends because they want to reinvest all of their profits back in the business to make it grow faster.
Finance
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