What are stocks?

When you buy stocks, or shares, you're buying part of a company. A company will offer a number of shares for sale. You can buy some, hold them as long as you like, buy more, or re-sell them.

Buying and selling is also known as trading. Once trading begins, the price of the stock can rise or fall.

Most stock is bought and sold at a stock exchange. Examples of stock exchanges are Nasdaq, the New York Stock Exchange, and the London Stock Exchange. You can also buy over-the-counter (OTC) stocks, which are not listed on stock exchanges.

You don't buy and sell stocks yourself, but act through a stock broker or brokerage firm. Usually you make the decisions, and the broker represents you on the market. You can also choose to let the broker invest your money for you.

You might buy stock at a low price, and sell at a higher price to make a profit. Or, you might invest in companies that will pay regular dividends over several years, for a more stable flow of income. The stock you buy depends on your financial goals, and your personal investment style.

There are two types of stocks: common, and preferred.

• Common stocks give you voting rights in the company. If you want to stage a hostile takeover, you would buy up as many voting shares in the company as possible. In general, common stocks give you a say in the way the company is run. Dividends fluctuate, depending on the fortunes of the company.

• Preferred stocks return a fixed amount, with regular payments, but you have no voting rights. If the company has financial problems, the dividends on preferred stocks are paid before those of common stocks.

A company pays dividends in cash, or in shares. Taxes may apply to cash dividends.

Price of Stock

What determines the price of stock?

Broadly speaking, the price of stock depends on supply and demand. The more people buying the stock, the more its price rises.

The market price of a stock is not the same as its intrinsic (real) value. A stock price can rise, simply because other people are buying. People may buy in hopes of quick wealth, or because they have emotional ties to the product or service - or, just because everyone else is doing it.

Scams, such as Pump and Dump, take advantage of this. Worthless stocks become inflated in price by increased buyer activity, based on hype and high-pressure sales.

Avoid stock market scams and bad investments, with five simple rules.

1. Research, research, research.
   
   Research is your best friend on the stock market. Usually, companies offering stock for sale must disclose financial statements and other company information. Know the company history, the key players and company structure. Look at past performance, and strategies for the future. Know the industry as well as the company. Examine the economic factors affecting its success or failure.
   
   Never invest in a company or industry you don't understand. If you do, it's not an investment. It's a blind gamble.

2. Put personal feelings aside

   Emotional factors can affect the price of stocks. Often, stock prices are driven by greed, emotion, or pure ignorance.
   
   Keep a cool head. Don't buy out of impulse or passion.
   
   Don't buy into wind power, for example, because you believe in saving the environment. Buy because the company has a solid performance record, a strong demand for its product or service, and good potential for growth and profit.
3. Diversify your stock portfolio
   
   Buy stock in more than one company. If you're just starting out, choose at least three or four different companies. Even the most reliable stocks can take a sudden dip.
   
   For instance, Maple Leaf Foods (MFI) stock was $16 a year ago. Recently, several people died of listeria found in Maple Leaf meats. In August of this year, stock hit an all-time low of $7.60.
   
   MFI stock is now rising again, largely due to investor interest in the low prices. The company has a solid history and will probably bounce back. However, this illustrates the potential for a sudden price dive even in established companies.
   
   If your portfolio includes several investments, you have a backup if one or two do poorly. Even seasoned investors make mistakes, or are subject to factors beyond their control.
4. Know when to hold 'em
   
   If a company's revenues go down, so do the stock prices. Is it temporary, and will the company recover? Wise investors know when to hold their stock, and when to cut losses, and sell.
   
   Don't listen to gossip or rumors. People will offer stock market tips, or claim to know stock market secrets, wink wink nudge nudge. Inform yourself, do your research, and make your own decisions.
5. The greater the risk, the greater the reward
   
   In general, the more risk you're willing to take, the more potential for high return. Also, the more chance the investment will fail, and you lose your money.
   
   Reliable companies command higher stock prices. Returns are less, but so is the risk.
   
   If a stock offers high return with low risk, be wary.

Experiment without Spending

Before investing your hard-earned money, set up a mock portfolio with several stocks. Follow your investments online, and chart their progress. Amend your choices, "buy and sell", and watch them perform in real time, without risking a penny.

What is the Capital Gains Tax?

As usual, the tax man is after a piece of your pie. If you sell your stock at a profit, a capital gains tax applies. Taxes may also apply to stock dividends.

You have a capital gain if you sell your stock for a higher price than you paid. If you sell your stock for less than you paid, it's known as a capital loss.

If you hold your stock for longer than a year, it's a long-term capital gain. Under a year, you have a short-term capital gain. Short term capital gains are taxed as regular income.

Long-term capital gains holders pay a tax of up to 15%. However, in 2008, investors in the 10 - 15% tax bracket paid a long-term rate of 0%. This won't change until the year 2010, when the rate will go back to 15%.

Be aware of the tax advantages or disadvantages of any stock you purchase.

What's Your Investment Style?

Are you a hard-nosed rogue or an armchair softie? Does losing money fill you with stress and worry, or do you hunger for challenge? Are you looking for a quick profit, or a long-term retirement strategy?

Understand yourself and your goals before you invest. Read up on the investment styles and strategies of top investors like Warren Buffett, his mentor Benjamin Graham, and people like Kirk Kerkorian or Jesse Livermore. You'll find that their styles are different, but they all believe in the five simple rules listed above.

Stock Brokers

When you're ready to invest, choose a stockbroker or brokerage firm that you trust. Licensed brokers are either full-service or discount brokers.

• Full-service brokers charge a higher fee. They provide information, details and guidance to the investor.

• Discount brokers charge a lower fee, provide minimal information, and usually don't give any guidance.

Decide on the type of service that's best for you. Again, research is your friend.

With a basic understanding of the stock market, you can make confident, informed decisions, and increase your chances of investment success.

It's because of patents, for example, that iPods can't just be taken apart, copied and made by whomever and sold to compete with Apple. Well, paritially because of patents. To get a more complete understanding, to truly understand why Microsoft had to design the Zune instead of just make iPods, you have to know the full "intellectual property" world.

The Big Picture: Intellectual Property

These terms, such as patents and intellectual property, are often familiar to most people but not fully understood. Let's draw the big outer circle first and work our way inward. Intellectual property is, just as the name implies, a type of property. You have your shoes, that's property, your PS3, that's property, your house, property and you have that story that you wrote in 5th grade about the monster tree that came alive and pulled apart all the dogs in the neighborhood. You were one sick puppy. No pun intended. But yes, that weird story is also your property - your intellectual property.

There are generally four types of intellectual property: patents, copyrights, trademarks, and trade secrets. Your 5th grade story falls under the "copyright" category. Basically, any story, book, song, article, etc., just about anything that you write down or record is protected by copyright. But we're not going to get into the other types of intellectual property too much here, after all, this article is about patents.

How does one get a patent and where does the attorney come in?

I lied. Just to make sure you understand, we'll talk about copyrights just a bit more for comparison sake. A copyright is granted the moment you write the piece of work down on paper. Did you write it down? That's it, you own a copyrighted work. A patent, however, goes through a much more complicated process. So complicated, in fact, that no ordinary attorney can do it for you. Broadly speaking, to get a patent you must prove that your idea is new, and that your idea is useful. Who do you need to prove this to? Why, the United States Patent and Trademark Office (USPTO), of course.

So unlike a copyright, which is granted just upon recordation, a patent must be applied for by filing a patent application with the USPTO.  Let me tell you something about the USPTO. It's a government agency, like the U.S. Postal Service (USPS), the Federal Trade Commission (FTC), Securities and Exchange Commission (SEC), and dozens of others. But did you know that other than the USPS, the people who deliver our mail, the USPTO receives the largest volume of mail per year out of all government agencies? There are over 7,000 employees working at the USPTO trying to review all of those patent applications coming in every day, but they are terribly behind. To the point where it could take anywhere from 2-5 years before your patent application gets granted - if it ever gets granted at all! Big difference from granted upon conception, eh?

So you can imagine, with all this backlog and all this mail, the USPTO has a strong interested in filtering the incoming communication and limiting it to those who know the law of patents as much as possible. This is why only attorneys that pass a special test can file papers with the USPTO. All attorney must pass test called the bar exam in order to work as and call themselves attorneys, but if they want to work with inventors and file patent applications with the USPTO, they must also pass the patent bar exam.  And not all attorneys can take the patent bar exam, only those that have a degree in a technical field that the USPTO believes will qualify them to understand patentable technology.

Ok, So the USPTO is Busy and the Patent Attorney Must Jump Through Some Hoops... What About Day to Day Work?

A patent attorney generally does one of two things: patent prosecution or patent litigation. Patent prosecution refers to writing a patent application and arguing back and forth in a long song and dance with the USPTO over those 2-5 years to convince the USPTO to grant the patent. Patent litigation refers to filing lawsuits in courts to enforce the patent rights for the patent owner. Remember at the beginning we said that a patent owner has the right to be the only one allowed to make, use or sell the invention? If anyone does one of these three things without the patent owner's permission, the patent owner can sue them and get paid in a number of ways.

These are the two major tasks of patent attorneys, prosecution and litigation, getting the patents and enforcing them. Each one is complicated in itself, so often times a patent attorney will focus on one or the other. If the attorney focuses on patent prosecution, the attorney may have hundreds of clients and be managing hundreds of patent applications that are slowly being examined by the USTPO. Day to day, the attorney will have various due dates arriving in various cases - need to respond to the USTPO in this case today, have another response due next week for another case so time must be set aside for that, etc.

If the attorney focuses on litigation, the attorney will most often work on one case at a time, depending on how large the case is. Sometimes, the attorney will work with a team of attorneys on a single case for months, studying the patent at the center of the lawsuit and studying the law to prepare the best arguments for their client.

Ok, I got it now. So how much do patent attorneys make?

Ah, it's not about the money, right? Right? You seem to be nodding your head and saying yes it is. Well, it is a niche field of law, and since it requires a few special extras like the technical degree and the patent bar, it can be pretty lucrative. But like any job, the real ideal is to do something you enjoy that pays enough, and if you enjoy reading about new inventions and enjoy arguing, seriously consider putting in the time to become a patent attorney. I'm sure you'll find it pays enough!

• Set up a bank account. Order preprinted deposit forms and a deposit stamp with the new business name. This saves you a bit of time in the beginning, but as you accumulate more properties, it can save you massive amounts of time and makes your business far more efficient. Seek out a bank that has online banking to save money in stamps, and even look for one that provides a day-to-day tracking of your bank account.
• Get a P.O. box. If you don't want your tenants to know where you live and don't have a professional office where your tenants can mail their rent checks, get a post-office box and add a second phone line in your home (or, if you have excellent cellphone coverage in your area, get a cellphone dedicated to your business). A separate phone line can have an informational voice mail on the outgoing message. Also get an e-mail address that contains your business name instead of your personal name. Put all of this contact information on your new business cards.
• Set up a Web site. Keep it simple - you just want a presence on the Internet. You should be able to set up a Web site quite simply and affordably; in fact, you may be surprised just how easy it really is to have your own site, which can give potential tenants information about your property.
• Take a class, attend a workshop, or hire a professional to teach you the basics to get you started and to keep you out of trouble. There are many fabulous resources out there.
• Plan now to own property long term. You may not own the same property forever, but you should have a plan to purchase property and build your business from there.

1. Always start with a complete and in-depth rental application that includes employment and employment history, as well as passed rental history. Make sure that each applicant knows an incomplete rental application will not be considered. Additionally, make sure that each applicant signs their application, as snooping around in people’s lives without a proper signature could get you in trouble.
2. First impressions are important. I prefer to meet potential applicants at the property and once they've filled out a rental agreement I always write a little note as to my impressions. I find that my instincts serve me well in most cases and a couple extra minutes talking with someone in person is better than reading something off of an application only.
3. Make sure to do your checking! It might seem tedious, but you absolutely must call and verify employment and call at least one passed landlord. Some people get full credit checks and even background checks on prospective tenants, and this might be necessary in some states or some areas, but at the very least you should do the phone work yourself.
4. Ask the right questions. This goes with the above point, in that when you call a potential tenant's passed landlords, you must make sure to ask the right questions. You are interested in how they cared for the property, if they paid rent in full and on time each month, if there were any major "problems" that the landlord had with the prospective tenant, and I always like to ask if the landlord would rent to the tenant in question again; I find that some landlords are leery of saying something negative, but if you ask something straight forward like "would you rent to this person again", it is difficult for them to dance around the question.
5. Narrow down your applicants and then call for a chat. I like to get down to five or six applications that I like and then give each person a call again to ask a few questions like "Do you plan to live here long term?", "Do you see any changes in your work situation in the near future?", "Tell me about your pets (if you're accepting pets), including their temperaments and problems you've had with them if any", "Do you have any special furniture like a water bed or a fish tank?", etc...this is the time to get any of your little questions cleared up. Remember to take notes.
6. Once you’ve chosen a tenant, keep everything in writing... this means all your notes, each check that you have done, person that you have called, etc. Keep all this information in a file, you never know when it might come in handy!

In the end, if you do your "due diligence" in screening potential applicants, if you work the phones, make notes of your impressions when you meet in person, and do the necessary follow-up, you'll thank yourself in the long run.

The first tenants that my husband and I accepted in our rental property were the first who applied. We were so worried about getting our property rented and so anxious to get a deposit, that we rented to three college kids without doing any research on their histories, and while they didn't do very much "damage" to the property and they did manage to pay their rent, we have since learned that taking time to "screen" and weed through a larger group of applicants makes our lives much easier in the end!