Transcript Stocks - Northwest ISD Moodle

STOCKS
PRIVATE VS. PUBLIC CORPORATIONS
 Private
Corporations – shares of stock are
NOT openly traded in stock markets
 Public
Corporations – sells shares openly
where anyone can buy them to fund their
business activities
COMMON STOCK VS PREFERRED STOCK
Companies who issue Common Stock



Form of equity and they don’t have to repay
stockholders
Dividends are NOT mandatory
Required by law to hold yearly meeting where
stockholders can vote on company business
Why do investors purchase Common Stock?



Income from dividends
Dollar appreciation of stock value
Possibility of increased value from stock splits
COMMON STOCK VS PREFERRED STOCK
Preferred Stock –
Attract more conservative investors because
 receive
voting rights, dividends, and might get
money if they company is in financial trouble
 may be entitled to dividends before common stock
and may have the right to be paid first a certain
amount of money before the common stock on a
liquidation or merger of the company into another
company
TYPES OF STOCK INVESTMENTS

Blue-Chip Stocks – stock issued by the strongest and
most respected companies: Wal-mart, AT&T,
McDonalds – very safe

Income Stock – Income stocks' prices do not tend to
fluctuate a great deal but pay dividends that are
higher than average: gas and electric companies
TYPES OF STOCK INVESTMENTS

Growth Stock – tendency to grow faster than the market,
these companies generally reinvest all earnings into
infrastructure in order to maintain rapid growth, rather
than directly paying out their earnings to investors:
technology stocks

Cyclical Stock – intensely follow the business cycles of
the economy, are always the first stocks to reflect a
recession or an expansion: airline or car manufacturer
company

Non-cyclical Stock - These are companies that provide
us with essentials, such as healthcare and food.
TYPES OF STOCK INVESTMENTS

Defensive Stock – remains stable during declines
in the economy: utility industry

Large Cap and Small Cap Stocks – corporation
that has issued a large number of shares of stock
and has a large amount of capitalization. Small
cap stocks are considered to be a higher
investment risk.

Penny Stocks – shares that trade for less than $1
SOURCES FOR EVALUATING
STOCK INVESTMENTS
 Newspaper
 Internet
 Stock
Advisory Services
 Corporate news
PRIMARY MARKETS FOR STOCKS

Bull Market – investors are optimistic about the
economy and buy stocks

Bear Market – investors are pessimistic about
the economy and sell stocks
FACTORS THAT INFLUENCE THE PRICE OF STOCK

Current Yield – A financial ratio that shows
how much a company pays out in dividends
each year relative to its share price
 Annual
Dividend
Current Market Value

Total Return – includes the annual dividend
as well as any increase or decrease in the
original purchase price of the investment
 Current
Return + Capital Gain = Total Return
FACTORS THAT INFLUENCE THE PRICE OF STOCK

Earning per share – measures the amount of
corporate profit that can be assigned to each
share of common stock


Net Earnings__________
Outstanding Common Stock
Price Earning (PE) Ratio – price of one share of
stock divided by the corporation’s earnings per
share of stock outstanding over the last 12
months.

Market Price Per Share
Earnings Per Share
PRIMARY MARKETS FOR STOCKS

Primary market – investor purchases securities
from a corporation through an investment bank
or other representative of the corp.

Initial Public Offering (IPO) – when a company
sells stock to the general public for the first
time
SECONDARY MARKETS FOR STOCKS

Securities Exchanges – marketplace where
brokers who represent investors meet to buy
and sell securities
New York Stock Exchange - NYSE
 NASDAQ
 AMEX (acquired by NYSE in 2008)

SECONDARY MARKETS FOR STOCKS

Over-the-Counter Market – network of dealers
who buy and sell the stocks of corporations
that are not listed on a securities exchange

Account Executives – stockbrokers who buys or
sells securities for clients

Brokerage Firms – trade stocks for you; fullservice, discount, and online
TRADING STOCKS

Market Order – request to buy or sell a stock at the
current market value
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Limit Order – request to buy or sell a stock at a specified
price
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Computerized transactions – you do the research and
analysis, but a full service and discount firms will allow
you to trade through a software package or website

Commission Charges – brokerage firms charge
commission on each transaction or a percentage of the
value
INVESTMENT STRATEGIES

Long Term
Buy and hold technique
 Dollar cost averaging – put in a certain amount
every year. Some years you buy a lot of shares and
other you buy fewer shares
 Direct investment and dividend reinvestment plans
– companies sell directly to investors and they
reinvest their dividends in the company to buy more
shares of that stock

INVESTMENT STRATEGIES

Short Term
 Investments traded less than 1 year
 Buying
stock on margin – investor borrows
part of the money needed to purchase a
stock through a brokerage firm
MARKET INDICES

A stock market index is a method of measuring a
section of the market
 A 'world' or 'global' stock market index includes
(typically large) companies without regard for where
they are domiciled or traded. Ex: S&P Global 100.

A 'national' index represents the performance of the
stock market of a given nation— The most regularly
quoted market indices are national indices composed
of the stocks of large companies listed on a nation's
largest stock exchanges, such as the American S&P
500, Japanese Nikkei 225, and the British FTSE 100
MARKET INDICES

A stock market index is a method of measuring
a section of the market
 More
specialized indices track the performance of
specific sectors of the market. Ex: Wilshire US REIT
which tracks more than 80 American real estate
investment trusts
 The
Dow Jones Industrial Average is an index of 30
"blue chip" stocks of U.S. "industrial" companies.
The Index includes substantial industrial companies
with a history of successful growth and wide
investor interest.