Stock Exchange Market Operation Of An Investor: Ratio Analysis (Essay Sample)

Stock market operation of an investor Student’s Name Institutional Affiliation Date Stock market operation of an investor Introduction The NASDAQ Company is an electronic stock exchange with currently more than 3,000 listings. It has been considered at the moment to have a greater trading volume than any other company in the US stock exchange. In fact, it handles close to 1.9 billion trades on a daily basis. Despite this huge daily transactions, NYSE is still considered at the moment to be the biggest exchange within the market simply because its market capitalization far much supersedes that of NASDAQ (Firm, Films Media Group, & TCT, 2014). This company, NASDAQ, trades its shares with various companies despite being known for high-tech, high growth, new and volatile exchange stocks. Such dealings are contributed to by the fact that most of the listings fees of the company within the market are lower compared to those of other companies. At the same time, it is a publicly owned company that trades its shares on its own exchange. Within the stock market, the company NASDAQ cannot be located with a physical trading block since most of its transactions are done through telecommunication and computer system. This makes it so much digital that most of the transactions are done online. However, it operates through a dealers’ market, implying that the selling and buying process by brokers is done in the market and not from each other. This means that a broker would purchase shares directly from the market. Due to the dynamics of this company, it would be recommended that before an investor could think of investing in the stock of this company, there are many basics that he should know (Firm, Films Media Group, & TCT, 2014).. This would start from the choice of the stock to suitability of the stock chosen to the risks involves in that particular stock and lastly a recommendation on whether to go forward and invest or not. This is exactly what forms this paper as it analyses these issues one after the other. Rationale for choosing preferred stock in NASDAQ A preferred stock for a company of high reputation like NASDAQ is normally issued to raise cash for the company. These are stocks which are more like bonds compared to common stock although they are bought and sold in a similar way regular stocks are traded on. The reason an investor would buy such a stock is to have steady dividends, which in most cases equates to 4-8% yield value (Spyrou, 2011). This dividends are normally paid quarterly. This is opposed to common dividends in which there is enjoyment of the appreciation of price in the event that the company comes with a hot product in the market. In general preferred means that the payment of the dividends on the shares must happen before the common stock dividends could be paid hence the reason one can go for it at the start due to its reliability. At the same time, in the event of NASDAQ going bankrupt, preferred stock holders would have an advantage over the common stock holder. This means that it is easier to lose a common stock than it would be for a preferred stock and hence for starters, preferred would be the way to go in terms of investing with the company. This is thus the reason I would advise my client to take on preferred stock first, thereafter, should there be need then he could transfer them to common stock since preferred stocks are transferable (Spyrou, 2011). However, despite the motivation to recommend preferred stock for the client, it is important to note that if NASDAQ was to fail then both the common and preferred stock holders would go at a loss as they all get nothing in that case. It can also be noted that preferred stocks normally have their annual dividends in place at the start and it is this principle that makes the selling of the shares to be at a preset value. This prevents unnecessary losses that are witnessed in most cases in the stock market. However, because of ability of the preferred stocks to trade in the open markets like any other regular stocks, the price at which they trade depends on the market forces of supply and demand. This would mean that should the price of the stock slip in the market by $1 and thus move from, say, $25 to $24 then the new investor yield would rise by close to 4.2%. This happens naturally without having to control the prices every now for the changes to be adjusted. Call off prices for preferred stocks Normally, the preferred stocks normally have minimum of thirty years of maturity with some being perpetual. This means that NASDAQ, in this case is not obliged to redeem them but instead can be called. In this case, the firm, NASDAQ, can redeem such stocks any time they want to or at the call date that was initially indicated. This, in most cases is stated as five years after the issue of such stock (Spyrou, 2011). This would thus be flexible for this first time investor and thus the reason it would be proper if an investor is advised to invest in such a stock within the NASDAQ Company. In most cases, the call price is usually the price at which the stock was given, making it a worthwhile investment as it minimizes the losses that are likely to occur in business process. Additionally, the issuer is not mandated to redeem them at the time they are called but when they issuer feel that the rates of interests have dropped. It is during this period that calling the stocks can help save money when calling back the originals and selling new ones which pays low interest rates. This is what makes the preferred stocks to continue to trade for quite a long time even after the call date (Spyrou, 2011). This is helpful to those who are tired of investing in the money market but getting nothing from it. This is thus a factor that informed my choice of the preferred stock to common stock which may work best for those who have been investors for a long time in the money market thus may not be affected by the fluctuations. Potential Price Appreciation When NASDAQ, which is the issuing corporation is a solid player in the market as it is, preferred stock would move back to the price at which they were issued. This would lead to capital appreciation apart from the dividends which are entitled to an investor in that same market. This is why investing in such bonds might be worthwhile in the long term for an investor like this one seeking information on where to invest in the stock market. For example, when share originally selling at $25 are bought and then their value depreciates to $23, the potential appreciation of an individual would be close to 9% while the nominal dividend is 7.6% (Spyrou, 2011). However, the call date might not be an issue if the preferred stocks were bought below their call prices. In reality, most companies would not call their preferred stocks below the prices at which they had issued them but instead buy them from the open market if they are interested of redeeming them. This is what makes it possible for losses to be incurred by investors thus the ground upon which I would chose this type of stock in the market. Suitability of selecting preferred stock for a client Being a client that is well educated in management and not finance the information that is given to him must be in-depth so that the process of decision making if facilitated properly. This is the reason he has sought for information on finance and planning for him to determine the returns that would accrue to him being worthwhile. Due to the nature of his profession and the level in which he is, first time-investor, it would be proper that he considers so many factors before making the actual decision on the final opportunity to invest in within the stock market. Some of which could be the level of business operations and the scale of operations. In doing this, there is need that one has proper information on all forms of stocks, allowing them to make informed judgment. The primary reason why I would choose preferred stock to common stock because the owners of preferred stock are normally ranked higher in the pecking order compared to their counterparts of common stock (Wуjcik, 2011). At the same time, this kind of stock has an advantage as owners receive their dividends before those of common stock hence in the event of bankruptcy in NASDAQ Company, owners of such a stock would not get at a loss. This is why the preferred stock is stable and hence is advisable that someone chooses it, especially those who are new in this form of investments. Additionally, preferred stock owners receive fixed dividends on the payments that they are entitled (Wуjcik, 2011). This is opposed to common stock owners whose earnings depends on the fluctuations, thus they are liable to new amounts every time there is fluctuations. Furthermore, despite not having the rights to vote in the decision-making process within NASDAQ Company, the owners of preferred stocks can later on transfer into common stock once they are stable hence be in a position to engage in the voting process. This is the reason it would be reliable and suitable if one begins with a stock that would give them much high returns and is less risky before eventually transferring to those that pay highly but more risky. It can thus be held that investing in a preferred stock is a safer means that is defensive compared to common stock. Since the liquidation of a preferred stock does not change over a period of the investment, this type of equity would be equivalence to owning a bond (Wуjcik,  2011). This implies that the liquidation value of the preferred stock can only be compared to that of per value of a bond. In addition, due to taxation requirements of common bonds, I believe that a preferred stock’s dividend per share rate is more stable versus most companies' common stock in a foreseeable interest rate environment in which an individual might be operating. Ratio analysis Ratio analysis of a company can...