inside information can do better than the averages and individuals and
organizations that are especially good at digging out information on small, new
companies also seem to do consistently well. Also, some investors may be able to
analyze and react more quickly than others to releases of new information, and
these investors may have an advantage over others. However, the buy-sell actions
of those investors quickly bring market prices in to equilibrium.- Preferred Stock
26.1 Preferred stock is hybrid – it is similar to bonds in some respects and to common
stock in others. The hybrid nature of preferred stock becomes apparent when we
try to classify it in relation to bonds and common stock. Like bonds, preferred
stock has a par value and a fixed amount of dividends which must be paid before
dividends can be paid on the common stock. However, if the preferred dividend
is not earned, the directors can omit (or “pass”) it without throwing the company
in to bankruptcy. So, although preferred stock has a fixed payment like bonds, a
failure to make this payment will not lead to bankruptcy.
As noted above, preferred stocks entitle their owners to regular, fixed dividend
payments.