Facebook did what?
(Types of Stocks)
February 19, 2021 by The Q.ai Team
The educational portion of this newsletter focuses on types of stocks
We’re weeks away from the 1 year anniversary of something we’re still dealing with
“Good morning to everyone except for those who said Bitcoin would never break $50,000” – an excited man on FinTwit.
We’ve made some small changes to the newsletter format – “this happened…” will now include:
- Five business headlines that made this week noteworthy
- A blurb about a common theme we saw in the news
This week, for example, the relationship between Big Tech and publishers have been brought into the spotlight, so we’re going to give you the Sparknotes version of what exactly went down.
Five headlines that sum up the week
1. Bitcoin broke $50,000.
Since Tuesday, the price of Bitcoin has now risen to nearly $54k. This is a milestone moment for crypto enthusiasts. PayPal and BNY Mellon have announced that they will start accepting the cryptocurrency, and Uber’s CEO told CNBC that the idea of buying Bitcoin has been floated in the past, and now they’re also considering accepting it as a form of payment. Who knows, maybe in 50 years we’ll all be telling our grandkids about the time the U.S. dollar was worth something.
2. U.K. Supreme Court rules that Uber employees are entitled to benefits.
The ruling stated that while Uber is a tech platform, it also sets rates, assigns rides, and enforces rules with drivers – all of which are interpreted as behaviors of an employer. This means that Uber drivers in Britain will receive minimum wage and vacation time. Read more.
3. The GameStonks congressional hearing happened yesterday.
Who was there? CEOs of Robinhood, Citadel, Melvin Capital, Reddit and a Reddit user named Roaring Kitty. Robinhood CEO Vlad Tenev apologized for limiting trades on GameStop while insisting that the company did nothing wrong in doing that. Payment for order flows was brought up a lot. Tenev pointed out that it has moved the industry to commission-free trading. Congressman Brad Sherman told Citadel’s CEO Ken Griffin that he did “a great job wasting [his] time” after Griffin’s answers about the controversial business practice didn’t satisfy.
For anyone who needs to hear this: Roaring Kitty is not a cat
4. Goldman Sachs launched a robo-advisor platform.
This was released under Marcus, a subsidiary that offers financial tools, savings accounts and personal loans. Customers are now able to access the company’s wealth management services, something that was offered exclusively to High Net Worth Individuals (HNWIs). Our opinion: it’s about time someone decided to do that, am I right?
5. The chip crisis rages on as Texas factories temporarily shut down.
Right now, millions of Texans are left without electricity as it faces a devastating winter storm. Throw in a global chip shortage and what do we get? Probably, a migraine. Texas is home to the most chip factories in the country and these factories are really expensive to run – usually it needs to operate at all hours of the day in order for the operating costs to be economically viable. However, in the grand scheme of things, it won’t be detrimental to the chip shortage, but it certainly doesn’t help. Read more.
ICYMI: things have heated up between Facebook and Australia
Australia introduced a new policy that requires platforms to pay publishers when their content is shared on social media and shows up in search results. Microsoft showed support of Australia’s policy and said Facebook and Google should pay their publishers, and the U.S. should adopt a similar policy. Google ended up signing a 3-year deal on Wednesday with News Corp.
Facebook, on the other hand, decided to institute a blackout of all news shared on its platform in Australia. It also blocked several Australian state governments and emergency departments. The reason? The Australian government did not clearly define “news” in this law. That drew some backlash. On Wednesday, the Australian Prime Minister shared this statement, on Facebook no less:
This abrupt decision was driven by Mark Zuckerberg himself, who argued that this new law could cost businesses money from lost ad revenue. Currently, Facebook has still shut down its news in Australia and the Australian government appears unphased by the move. The standoff continues.
How to distinguish stocks by type and style
Stocks can be classified into categories such as type and style. The type of stock determines an investor’s rights, while the style of stock is determined by factors such as its financial performance.
Types of Stock
There are several ways to classify stocks, but one of the most important is by type. Each of these carries their own benefits and drawbacks, which means that which one is “better” depends upon personal preference.
Common stock is what the average person images when they think about the stock market. This type of stock gives shareholders the right to vote in meetings and typically yields the highest returns over time. However, there are some drawbacks to common stock.
- Common stockholders can receive dividend if the board votes to issue dividends. However, the board is not required to issue dividends to common stockholders.
- In the event that a company is liquidated, common stock shareholders may receive some of the proceeds – but not always
Preferred stock, on the other hand, does not confer voting rights to shareholders. They also tend to yield lower returns over time. However, preferred shareholders are more protected in certain situations.
- If a company issues both common stock and preferred stock, preferred stockholders will receive a dividend even if and when common stock owners do not
- Preferred stocks can be redeemed on a specific date, similar to a bond
One of the reasons that an investor may choose to invest in preferred stock over common stock is due to the investor pecking order.
- In the event that a company is liquidated, preferred stockholders are amongst the first groups to receive funds from the settlement
- On the other hand, common stockholders may never see a penny from liquidation proceedings
Another common way to classify stocks is by style, which can also be divided into two primary categories: growth stocks vs value stocks. Because we’ve covered growth and value investing strategies recently, some of this stuff will be a refresher.
- Shares sold by a company that an investor believes may have great potential
- Can be either short-term or long-term, depending on how quickly the company realizes its potential
- Generally expensive
- Rarely pays dividends
- Higher risk of failing, especially younger growth companies
The point with growth stocks is simply this: where there is high volatility and risk, so too is the potential of high reward.
- Securities an investor believes to be underpriced
- Many value stocks are large companies that have temporarily fallen on hard times (during COVID big corporations traded like value stocks)
- Takes a fair amount of time and practice to learn the market well enough to determine value stocks without outside input
- Easy for an investor to make a bad call
- Focused on the long game (think: years and decades – not months)
The bottom line
Stocks are not just represented by style, but also by type. It’s important to know the difference between the different types of stocks you can purchase, because they each come with its own set of benefits and downsides (a common theme with most things in investing).
Remember when we said that we’ve been debating making a TikTok? Well, we did it. It’ll cover a lot of the stuff we talk about in the Investing ReimaginedTM newsletter. Don’t be shy! Gives us a follow @qai_invest.