characteristics of equity securities

 discuss  the  characteristics  of  equity  securities  available  to investors, including classes of stock and American Depository Receipts.

The returns of equity securities are not contractual. This means that return of an equity investment can be much better or worse than that of a bond, which has contractually fixed payment schedule.

Common stocks represent ownership shares in a corporation. Owners of the common stock of a firm share in the company's successes and problems. The two most important characteristics of common stock as an investment are:

Residual claim: it means that stockholders are the last in line of all those who have a claim on the assets and income of the corporation.

Limited liability: it means that the greatest amount shareholders can lose in event of failure of the corporation is their original investment.

People tend to divide the vast universe of stocks into categories based on general business lines and  by industry  within these business  lines.  The  division  gives  classifications for industrial firms, utilities, transportation firms, and financial institutions. Within each of these business lines are industries. The most diverse group - the industrial group -includes such industries as automobiles, industrial machinery, chemicals and beverages. There are four ways to invest in foreign equities:

The easiest way to acquire foreign shares directly is through American Depository Receipts (ADRs), which are domestically traded securities representing claims of shares of foreign stocks. Those shares are held in deposit in a bank in the firm's home country. Investors buy and sell ADRs in US dollars and receive all dividends in US dollars. This means that the price and returns reflect both the domestic returns for the  stock and the exchange rate effect. They are  now quite popular in  the  US because of their diversification benefits.

American shares are issued in the US by a transfer agent acting on behalf of a foreign firm.

Direct purchase of foreign shares: buy the shares on the stock exchange where the firm is listed.

International or  global mutual funds: international funds invest in almost only foreign stocks; global fund invest in both US stocks and foreign stocks.