• Since common stock represents ownership of a business, stockholders are the last to get paid, like all other owners. A company must first pay its employees, suppliers, creditors, maintain its facilities and pay its taxes. Any money left can then be distributed among its owners.
• While shareholders are company owners, they do not enjoy all of the rights and privileges that the owners of privately held companies do. For example, they cannot normally walk in and demand to review in detail the company’s books.
• Investors in a company may not know all that there is to know about the company. This limited information can sometimes cause investment decision-making to be difficult.
• Stock prices tend to be volatile. Prices can be erratic, rising and declining quickly. Such declines often cause investors to panic and sell, which actually only serves to lock in their losses.
• Stock values can sometimes change for no apparent reason, which can be quite frustrating for the investor who is trying to anticipate the stock’s behavior based on the actual performance of the company.

In Part 2 of this series, we’ll explore the various kinds of common stocks.