A stock certificate is physical proof of your ownership of shares in a company. It contains detailed information relating to the issuer and the owner, including the issuer's name, specifics of the issue, the number of shares, and the name and address of the owner. On the back of the certificate, you'll find details about the issue, along with provisions for transferring ownership.
Once you, the investor, purchase shares of stock in a company, there are three ways that you can "hold" the stock. The company can send you a beautifully engraved stock certificate that often flaunts relevant photos of the company -- like Mickey Mouse for Disney, or a bunny for Playboy Enterprises -- and you can keep them in a safe deposit box or under your mattress.
If you're having too many senior moments and are concerned that you'll misplace the certificate, you can give the actual certificate to your broker who'll keep it safely for you. Or, the final, and perhaps best, alternative -- your broker can keep the stock in "street name." In fact, this has become the de facto way that most recently purchased stock is held.
Street name means that the broker keeps your shares of stock in their name, and electronically tracks which shares are owned by which of their clients. Brokers prefer this, as it is easier for safekeeping and ease of transfer. If shares are kept in "street name," the corporation you own has no direct access to your name and address, since the shares are registered in the broker's name. Materials sent to "street name" holders, like annual reports or proxy statements, must be delivered first to the broker, who then distributes it to you.
While you may prefer to cleave to a stock certificate yourself, holding it in "street name" is a very good idea, and has many advantages over sticking it in your sock drawer. For starters, your stock is always available for immediate sale or transfer to another broker. In addition, your monthly brokerage statements are proof of your ownership, so it's hard to lose track of what you own. Also, if your stock splits, there's no labor-intensive process of returning your old certificate and having a new one issued. (If you're still leaning towards the sock drawer, consider how frequently socks disappear at laundry time.)
The disadvantages of "street name" are pretty minor, the major one being that you can't sell your stock directly to another person without getting a certificate from your broker (an easy process but it will cost you about $25, depending on the broker).
If you've decided to take possession of your stock certificates, you will need to be aware of the name and functions of the "transfer agent." The transfer agent, whose name is printed on the stock certificate, is the company, often a bank, which is responsible for maintaining current records of stock ownership. They handle things like paying dividends, sending out annual reports, and handling stock splits. They are also essential for replacing lost certificates or tracking down the value of an old stock certificate.
Oh yes... transfer agents are also responsible for transferring stock ownership. Doh! But these days, they probably spend most of their time transferring ownership between various brokers who are holding most of it in street name.
If you have decided to invest using the Foolish Four technique, though, letting your broker hold your shares is by far the easiest way deal with your four Dow stocks. Since most Foolish Four stocks are held only for a year or two, messing with stock certificates would just slow you down.
Next week, the sequel: "Ye Olde and Lost Stock Certificates." Bring your own popcorn.