Personal Stock Holdings - The Risks of Holding Your Stocks Exposed
Assuming that you are able to justify the investment(s) you make by impersonal, objective reasoning, every
investor still knows that there is a degree of risk involved when an investment has been made in a certain
company. This is what I refer to as the risk of your personal stock holdings.
I distinguish two types of risks regarding to your personal stock holdings:
The risk regarding sudden events;
The risk regarding holding your stocks.
Before exposing the risks of holding your stocks, I would like to point out that I included a personal comment
and a recommendation regarding these risks, in the notes at the bottom of this article.
1. Sudden Events
We probably all have seen a stock price plummeting due to the information presented in a company's press
release. Although I cannot promise you that this will never happen to you (again) - I can reveal a free and
powerful tool which I use tomonitor the press releases relevant to my stock portfolio. By clicking on the link
provided you will be redirected to the page which explains exactly how you can use this tool for your own
benefit. Using this tool helps you react faster to these sudden events, thus increasing the possibility to
minimise your loss.
2. Holding Your Stocks
Another type of risk related to your personal stock holdings involves the risk of the stock ownership itself.
To demonstrate this type of risk, I have gathered some interesting articles which I recommend you to read.
The first article: Holding Your Securities, explains the three possibilities which exist when it comes to holding
Physical Certificate - The security is registered in your name on the issuer's books,
and you receive an actual, hard copy stock or bond certificate representing your ownership of the
Street Name Registration -The security is registered in the name of your brokerage
firm on the issuer's books, and your brokerage firm holds the security for you in 'book-entry' form.
Book-entry simply means that you do not receive a certificate. Instead, your broker keeps a record in its books
that you own that particular security.
Direct Registration - The security is registered in your name on the issuer's books,
and either the company or its transfer agent holds the security for you in book-entry form. The Direct
Registration System (also known as DRS) allows investors to transfer securities held this
Depending on which method your securities are held, your risk level varies. Most investors hold their stocks in
the account of their broker/dealer (street name). Although this is by far the easiest and most practical way to
hold your stocks, you must understand that this method carries by far the highest level of risk, as your
stock ownership can only be proven through the records of your broker. Logically, physical stock
certificates are the least riskiest way to hold your securities.
If you actually have physical stock certificates in your possession, you run the risk that the stock
certificates are lost or stolen. In the article Lost or Stolen Stock Certificates you can read all about what to do in these situations.
If your stock broker goes bankrupt you are protected by the Securities Investor Protection Corporation (SIPC). You can read all about the SIPC by clicking
on the link provided. Please keep in mind that the SIPC coverage is limited to $500,000 per
customer (including up to $250,000 for cash) and we must assume that the funds of the SIPC are
sufficient to cover the loss of all the customers affected by the specific bankruptcy.
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Note: It's my estimate that it is highly
unlikely when one or more of the major stock brokers go bankrupt, that the funds of the SIPC are sufficient to
cover the losses of all the customers affected by this specific bankruptcy (or bankruptcies).
Note: Although my own stock broker holds my
securities in 'street name', I recommend you to consider holding your stocks - especially those which you intend to
hold for the long term - through a physical certificate.
What Type of Content Can You Expect to Find on UndervaluedEquity.com
Today's News Related to the Global Energy and Mining Stocks.On
this page a RSS feed is displayed with stock market news related to the energy and mining sectors.
You can subscribe to this free RSS feed too!
How I Conduct My Stock's Due Diligence Investigation Process.If
you want to know what I learned while I was conducting my due diligence, I recommend you to read
all the chapters of the investigation process.
Are These the Best Stocks to Buy Today.In my stock watchlist you
find stocks who offer great potential, but at the time I analysed these stocks they didn't comply
with all my guidelines from my due diligence chapters.
Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for
investors passionate about investing in undervalued stocks. ThroughUndervaluedEquity.com, he shares his
experience and knowledge and will soon reveal his personal stock portfolio.