Classification of Shares
Shares may be classified into certain categories. Each category is distinct from the other and they either attract or repel investors.
Some of the more common classifications are:
1. Blue Chips
Blue chips are shares of established, profitable, dividend paying companies. They are safe investments with reasonable certainty of regular dividends and long term growth. These shares are widely held. The management enjoys a good reputation. Most blue chips will have the following features:
(a) The shares are widely held.
(b) The company had paid an average dividend of at least 15 percent during the last 5 years.
(c) The market price of the shares has appreciated by at least 15 percent cumulatively every year.
(d) The company’s sales and profits have been growing regularly every year – the increase being better than the industry average.
The shares that are widely distributed considered as blue chips are companies such as Infosys Technologies, WIPRO, Reliance Industries, Asian Paints, several of the Tata Companies, several companies in the Aditya Birla Group, Larsen and Toubro, Hindustan Lever, Ranbaxy and the likes – leaders in their industry.
Widow’s shares
These are shares of fundamentally strong companies which can be bought and forgotten about as they are safe. They would not become worthless pieces of paper or even fall drastically in value. The companies are usually ‘true blue’ and pay regular dividends. The word ‘widow’s shares’ was coined to suggest that widows who had no exposure to the world of finance and were blissfully ignorant of its complexities could, with their eyes closed, purchase these shares and sleep easy – secure in the knowledge their capital is safe and that they would receive regular income.
Widow’s shares pay a regular dividend though they are not as high as or as generous as the more flamboyant ones and are not given to tremendous volatility in the market. Their price does not soar or plummet but bears a steady course. They are usually categorized as ‘A’ quality shares and listed in the forward section or group A.
A word of caution though. During the last decade several of these “safe” companies have gone through difficulties, not paid dividends and some have even gone under. Therefore, if you are an investor my advice is that it would be foolhardy to buy and forget a share believing in its intrinsic value. We live in turbulent times. Change is rapid and unpredictable. Always keep an eye on your investments.
Wishful Shares
Wishful shares are the shares of those companies that are not doing particularly well. Investors or speculators buy these with the fond hope that the fortunes of the company would change. It may happen and it may not. I know several people who, with wishful thinking, purchased the shares of a well known company that had not been doing well for sometime. Within three months of their purchasing these shares, the company announced improved results and the share price trebled.
In style Shares
These are shares of companies that people purchase as it is in vogue to purchase them and as one wishes to be “one of the gang”.
Optimistic Shares
Optimistic shares are those that are expected to rise substantially in the short term. They are bought in expectation of great profits. One can make thumping profits or thumping losses.
Low High Shares
These are low priced shares which the investor believes will rise in value at which time he sells them at a profit. These are in short, low priced shares which appear to have the potential to rise in value.
Trading Shares
Trading shares are bought by investors to sell them at the earliest opportunity of making a certain profit. The companies may not be particularly strong but they have the potential of rising. The investor does not believe in holding these shares.
AND
Sensitivity Shares
These are shares on which the movement of the market and the stock exchange index is calculated. These are usually ‘A’ group shares. Their movement up or down determines whether the stock exchange sensitivity index rises or falls.
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