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Tuesday, August 5, 2008

Shares, What are They?

From The Hoss's Mouth

Today Hoss Cents Free Financial Money Magazine will answer the question, Shares what are they?

Horses come in a variety of colors brown, black, chestnut and grey to name a few. Equities also come in various varieties. Common shares, Restricted voting share, Preferred share, Flow-through share and rights and warrants. Equities just like horses perform differently, some come with voting rights, some don't, some pay dividends, some don't, some allow share holders to elect directors, some don't. In all cases you usually have to pay a commission when you buy and/or sell shares. The only exception being rights and warrants not listed on a stock exchange for which there is no fee for their issue or exercise.

The Hoss has listed below various types of equities and a summary of each.


Common Share: Common shares come with the right to elect directors and in some cases vote on major corporate decisions. Depending on the companies performance and long term goals they may or may not pay a dividend. In the event of dissolution the common shareholders rank behind tax authorities, employees, creditors and preferred shareholders. You can make money in two ways; with the dividends you receive and if you sell the shares for more than what you paid for them(capital gain). You can also lose money by selling for less than you paid (capital loss). Risk is considered medium to high.

Restricted Voting Share: The same as a common shares except for voting rights.

Preferred Share: Check to see if still available. Preferred shares pay a fixed dividend. However, these fixed dividends may be reduced or suspended if the company falls on hard times or for some reason wants to preserve its capital. The price of a preferred share may decrease if other investment types become more profitable or if the company plans to reduce dividends. Preferred share prices usually do not fluctuate as much as common shares. Preferred shareholders may have the right to convert to common shares for a certain price or at certain times redeem their shares. Usually there is no voting rights. In the event of dissolution preferred shareholders rank behind tax authorities, employees and creditors but ahead of common shareholders. You profit through dividends and/or capital gains. Risk is considered medium to high.

Flow-through share: Oil and gas or mineral exploration firms issue these special types of common shares that allow certain tax deductions for qualifying exploration, development and property outflows to "flow through" to shareholders from the company. These are high risk and the tax legislation qualification requirements are very strict.

Rights and Warrants: You have the right to purchase additional securities from the company within a specific period of time for a specific price. Stock exchanges do list some rights but generally they are issued in proportion to the number of shares held by the shareholder. In some cases there may be restrictions on the exercising or resale of these rights. Warrants permit shareholders to acquire other securities of the company. The risk associated with Rights and Warrants ranges from very high to very low.

You or you and your advisor should do considerable research before purchasing any stock and even then there is no guarantee you will make money.

The Hoss can hear the dinner bell ringing so until next time,

Stay on track,

The Hoss

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