At StateTrust, our equity desk offers expert assistance to clients dealing with global equity securities. Our equity trading desk covers more than 7,500 securities around the world in both local and foreign currency.  We service  individual as well as institutional clients.

What is a Stock?

A stock is a financial security that represents a unit of ownership in a specific corporation. This ownership is documented by the issuance of Stock Certificates in electronic or physical format.  Individuals or companies that have a stake in the corporation are known as Shareholders.

Classes of Stocks

A corporation may issue different types or classes of shares, each having distinctive ownership rules, privileges, or share values.  Stocks typically take the following forms:


  • Common Stock. Typically carries voting rights that can be exercised in corporate decisions.
  • Preferred Stock. Typically does not carry voting rights but is legally entitled to receive dividend payments before any dividends can be issued to other shareholders and have preference over common shareholders in the event of liquidation or bankruptcy.
  • Convertible Preferred Stock. Is a preferred stock with an option for the holder to convert the preferred shares into a fixed number of common shares, usually anytime after a predetermined date at a fixed price.

Benefits of Stocks

The benefit of owning stocks has been historically higher returns compared to other asset classes. However, these higher returns and long-term growth have been accompanied by more risk.  How a stock actually performs depends on underlying business and market conditions. Companies have good and bad years, often making returns volatile.


Asset Class Pros Cons


  • Higher returns
  • Accessibility and Liquidity
  • Tax deferral flexibility
  • Lower long term capital gains tax rate (currently 15%)
  • Higher volatility or risk


  • Income generation
  • Lower risk than stocks
  • Adds diversification* to portfolio
  • Some bonds such as municipal and state general obligation bonds can carry no federal tax liability
  • Value susceptible to interest rate changes


* Diversification does not guarantee a profit or ensure against loss.

Fundamental Analysis

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. When applied to futures and forex, it focuses on the overall state of the economy, interest rates, production, earnings, and management. When analyzing a stock, futures contract, or currency using fundamental analysis there are two basic approaches one can use; bottom up analysis and top down analysis. The term is used to distinguish such analysis from other types of investment analysis, such as quantitative analysis and technical analysis.

Fundamental analysis maintains that markets may misprice a security in the short run but that the "correct" price will eventually be reached. Profits can be made by trading the mispriced security and then waiting for the market to recognize its "mistake" and reprice the security.

Some of the most popular financial calculations used in fundamental analysis are:

Term Description
Earnings per Share (EPS) Ratio of taking the net earnings and dividing it by the outstanding number of shares.
Price-to-Earnings Ratio(P/E) Ratio of taking the share price of the stock and dividing it by the company's EPS. It reflects what the market is willing to pay for the company's earnings.
Projected Earnings Growth It is calculated by taking the P/E ratio and dividing it by the projected growth in earnings.
Dividend Payout Ratio It is calculated by dividing the annual dividends per share by the Earnings Per Share.
Dividend Yield It is calculated by taking the annual dividend per share and dividing it by the price of the stock.
Return on Equity (ROE) It is calculated by dividing the Net Income by the Book Value of the firm. Use this measurement to compare companies in the same industry to get a better financial picture.
Book Value It is calculated by subtracting Total Liabilities from Total Assets.
Dividend History A historical distribution of payments from the company to its shareholders.

Risk versus Return

When developing a portfolio asset-allocation policy, it is important to understand the risk/return relationship of the assets being considered. The following image illustrates the risk/return relationship of five traditional asset classes over the period 1926 - 2010:



Source: StateTrust’s analysis of Morningstar data.  Performance shown is not indicative of the performance of any specific investment.  An investor cannot invest in an index, such as the one these graphs are based on.  Past returns are no guarantee of future performance.  These returns are based on historical information, from sources believed to be reliable, but accuracy cannot be guaranteed, and these returns can vary in future time periods.

At any point in the economic cycle, various segments of the economy may be doing better or worse than others. This may be true globally, regionally or by country.  Analyzing these trends and buying stock in companies that specialize in different business segments and activities - like manufacturing, energy, telecommunications - may provide diversity* to investment portfolios. Stocks from companies in industries that greatly differ from each other in terms of business activity can react similarly to changes in the economy. For example, cyclical stocks, like retail and travel, are sensitive to the economic cycle because in tight economic periods, consumers are less likely to spend money on non-essential items. On the other hand, defensive stocks represent necessary items, like food, gas and medicine, and tend to change very little with the economic cycle because consumers are likely to continue buying them even in tough economic times. S&P Global Industry Classification Standard 

Code Sector Subcode Industry Groups
10 Energy 1010 Energy
15 Materials 1510 Materials
20 Industrials 2010 Capital Goods
2020 Commercial & Professional Services
2030 Transportation
25 Consumer Discretionary 2510 Automobiles and Components
2520 Consumer Durables and Apparel
2530 Consumer Services
2540 Media
2550 Retailing
30 Consumer Staples 3010 Food & Staples Retailing
3020 Food, Beverage & Tobacco
3030 Household & Personal Products
35 Health Care 3510 Health Care Equipment & Services
3520 Pharmaceuticals, Biotechnology & Life Sciences
40 Financials 4010 Banks
4020 Diversified Financials
4030 Insurance
4040 Real Estate
45 Information Technology 4510 Software & Services
4520 Technology Hardware & Equipment
4530 Semiconductors & Semiconductor Equipment
50 Telecommunication Services 5010 Telecommunication Services
55 Utilities 5510 Utilities

* Diversification does not guarantee a profit or ensure against loss.

Terminology of Stocks

The following is a partial list of terms commonly used in equity investing:

Term Description
Annual Report A report that public companies are required to file annually. It describes past years' financial results and plans for the coming year.  Annual reports include information about a company's assets, liabilities, earnings, profits, and other year-end statistics.
Bear Market Describes a prolonged period of declining stock prices.
Bull Market Describes a prolonged period of rising stock prices.
Beta A measure of a stock's volatility; the average beta for all stocks is + 1.
Blue-Chip Stock Indicates the stock of companies with long records of growth and profitability.
Common Stock Securities that represent a unit of ownership in a corporation.
Convertibility Bonds or preferred stock that can be exchanged for a certain number of shares of common stock in the same corporation.
Dividends A distribution of income from earnings to shareholders.
Broker A licensed professional that trades and charges commissions based on the type and amount of securities traded. Full-service brokers typically charge more than discount brokers but also provide more extensive services (such as research and personalized advice).
Diversification* The policy of spreading assets among different investments to reduce the risk of a decline in the overall portfolio because of a decline in one investment.
Penny Stocks Stocks that sell for $5 or less per share
Preferred Stocks A type of stock that offers no ownership or voting rights and generally pays a fixed dividend.
P/E Ratio The price of a stock divided by its earnings per share.


* Diversification does not guarantee a profit or ensure against loss.


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