Common stocks are equity securities that are sold to the public, and each share constitutes ownership in a corporation; when people talk about trading shares, they're talking about common stock, and this type is the primary focus of this chapter. Preferred stocks are somewhat different; while they still denote ownership in a corporation, they also have some characteristics more in common with bonds than with common stocks.

Corporations come in all sizes. You can invest in a wildly successful mega-company or a micro-cap company that is just beginning to show signs of growth potential. Some people prefer to buy the common stock of well-established companies, while other investors would rather invest in smaller, growth-oriented companies.

No matter what type of company fits in with your overall strategy, it's important to research every potential stock you buy. Just because a company has been around for decades doesn't mean it's the best investment vehicle for you. Furthermore, companies are always changing, and it's important to make sure that the information you are reviewing is current. Mergers and acquisitions have become commonplace, and it's essential to know if a company you are considering buying is undergoing, or is planning to undergo, such a transaction.

Find out about a company's market capitalization, or the market value of all of the company's outstanding shares. To calculate the market capitalization, multiply the current market price of a stock by the number of outstanding shares. The number of outstanding shares refers to the number of shares that have been sold to the public.

The math is pretty straightforward: A publicly traded corporation that has 30 million shares outstanding that are currently trading for $20 each would have a market capitalization of $600 million. Although there are a few different groupings used to categorize stocks by their capitalization, here's a general rule of thumb you can follow:

• Large cap: $10 billion and over

• Mid cap: Between $2 billion and $10 billion

• Small cap: Between $300 million and $2 billion

• Micro cap: Under $300 million

In addition to market cap, there are also different categories of stocks, enough to round out any portfolio. The variety includes blue-chip, growth, cyclical, defensive, value, income, and speculative stocks, and socially responsible investments (SRI) — and don't forget preferred stock.