Common Stock and Preferred Stock

What are common stocks and what can they do for you
Historically, the stock market has gone through many booms and bust cycles. The most recent bear market (an extended period of market declines) started on March 2000 and lasted until 2002. T

o put this situation in perspective the last three-year bear market occurred 60 years ago. The toughest hit was received by NASDAQ Composite Index due to its broad composition of technology and Internet-related stocks.

 

For the year 2002 NASDAQ was under 31.5% and 73.6 since March 2000. The total value of US stocks for March 200 was approximately $17 trillions which dropped to $10 trillions by the end of 2002. More mainstream stocks also suffered losses during this period., but they were not hit as severely. The Dow Jones  Industrial Average was down 15.01% for 2002 and 28.8% for the 3-year period. Part of the fault for this bear market can be attributed to the extreme overvaluation of many of their stocks. 

Many Internet and technology related companies came into existence based merely on good ideas. Many of these companies generated sales, but unfortunately could not win out any profits. Consequently, new measures to value these type of companies were developed. The traditional form of measuring used by companies to value profits showed that these were overvalued, but the new method of measuring used as base in sales created a new sense of euphoria that fed the speculative bubble. People that had never invested in stocks hurried to the markets, investing without caring in what type of business was the company involved in.

You could learn a lot from the bear market. First you have to learn how to differ the type of stocks and learn what they can do for you. Second, you must understand that the value of the company is important. Finding undervalued companies is not easy, but investing in overvalued companies is a safe way to lose money.