Personal FinanceMr. Hargett

2013-14

Stock Market

StockWhat is a stock?

Part ownership or equity in a corporationCommon Stock-Preferred Stock-

Why Buy Stock?Invest in or support a company that you hope

will provide returns on your investment.

Stock TypesCommon Stock-

One vote per shareDon’t receive Dividends unless Declared

o Successful = large dividendso Poor = no dividends

Preferred Stock-No VoteFixed dividends based on percentage of original

purchase of sales price If huge losses = no dividends, but must be repaid

before any common dividends paidLower Risk

Stocks InfoWhy do companies issue Stock?

To raise money to pay for equipment, buildings, and operating expenses

1st issued to ?Investment Bankers, they pay money for the

stocks to the companyWhy do they buy them?

Hoping to resell on the public market for a higher price

What are stock markets?Places or ways in which people buy and sell

stocks

Stock MarketsFormal Stock Exchanges

New York Stock Exchange (NYSE)- 12011 Trade Value- $20,161,000,000,000

Tokyo Stock Exchange (TSE)- 3London Stock Exchange (LSE)- 4

Oldest (1801)Shanghai Stock Exchange (SSE)- 5

Not completely open to the foreign investorsHong Kong Stock Exchange (HKSE)- 6Toronto Stock Exchange- 7

2011 Trade Value- $1,542,000,000,000

Stock Markets- contElectronic Markets

National Association of Securities Dealers Automated Quotations (NASDAQ)- 22011 Trade Value- $13,552,000,000,000

Tend to be less expensive to trade in a computer system

Market IndexesDow Jones Industrial AverageS and P 500Show trends in a market, large or focused

http://money.cnn.com/data/world_markets/americas/

Investment in StocksHow do people earn money with stocks?

Capital gains from selling high, buying lowDividends

What are dividends?Part of the company’s profits, distributed to the

ownersWhat determines the price of a stock?

Market value, reports, investment trendsMain advantage of owning stock

Sharing in the company’s profits as the company grows, hopefully equaling an above-average return on an investment

Investment in Stocks- contMain disadvantage of owning stock

Chance of losing all or part of the investmentTerms?

Portfolio-An itemized list of investments

Diversify-To spread out or vary investments

Other InvestmentsMutual Funds

Is a financial organization that accepts funds from many people and invests them is a variety of stocks.Load Funds

Sales people receive a commission when bought or sold ~ 6%

No-Load FundsNo sales commission, thus you have to peruse the fund

Maintenance FeeAnnual fee that pays for the cost of operating the fund

o Range from 0.4% - 3.0%

o Invest in a No-load, low maintenance fee fund is recommended

Other Investments- contBonds

Is a promise to repay the holder a fixed sum of money on the maturity date plus annual interest payments.Treasury Bonds

Different in the face value is not met until maturityCorporate Bonds

o Most bonds are transferable, so they are resold on the secondary bond market.

CurrenciesA world market effects?

Other Investments- cont 2ETFs- Exchange Traded Funds

A security that tracks an index, a commodity or a basket of assets like an index fund, but trades like a stock on an exchange. ETFs experience price changes throughout the day as they are bought and sold.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on margin and purchase as little as one share. Another advantage is that the expense ratios for most ETFs are lower than those of the average mutual fund. When buying and selling ETFs, you have to pay the same commission to your broker that you'd pay on any regular order.

Other Investments- cont 3ETFs- Exchange Traded Funds- cont

One of the most widely known ETFs is called the Spider (SPDR), which tracks the S&P 500 index and trades under the symbol SPY.

CommoditiesA basic good used in commerce that is

interchangeable with other commodities of the same type. Commodities are most often used as inputs in the production of other goods or services. The quality of a given commodity may differ slightly, but it is essentially uniform across producers. When they are traded on an exchange, commodities must also meet specified minimum standards, also known as a basis grade.

Other Investments- cont 4Commodities- cont

Any good exchanged during commerce, which includes goods traded on a commodity exchange.

http://www.cmegroup.com/product-codes-listing/cbot-market.html

Bear vs Bull MarketsBear Market

A time when stock prices are fallingBears fight coming down on prey

Bull MarketA time when stock prices are risingBulls fight in an upward motion

History

Our systemCapitalism

A system in which individuals are free to own, trade, and use things in order to make a profit

CorporationsA legally established company

Sole-Proprietor, C and S Corporations, Partnership, Trust, Non-Profit

Can be private or publicPrivate- Held Privately

o http://www.forbes.com/lists/2011/21/private-companies-11_rank.html

Public- Sold on the Stock Exchangeo http://www.forbes.com/global2000/list/

Public CorporationsOne of the biggest differences between the two

types of companies deals with public disclosure. If it's a public U.S. company, which means it is trading on a U.S. stock exchange, it is typically required to file quarterly earnings reports (among other things) with the Securities and Exchange Commission (SEC). This information is also made available to shareholders and the public. Private companies, however, are not required to disclose their financial information to anyone since they do not trade stock on a stock exchange.

Misc ItemsStockbroker- a professional who is licensed to buy

and sellUnderwriter- buys new securities issued and resells

as individual stocks or bonds to the public.Cash Accounts- Pay cash for every transactionMargin Accounts- Broker lends you a portion of the

funds at the time of purchase and the security acts as collateral.

Short Sell- selling what you don’t own, then buying lower and making money on the margin.

Covering- Replacing the shares borrowed from brokerCalled Away- Elimination of contract due to obligation

Misc Items- cont 2Going Long- Buying for increase in price over timeStock Split- Dividing a stock into more parts or

reverseTechnical Analysis- The academic study of

historical chart patterns and trends of publicly traded stocks. Technical analysis of stocks and trends employs the use of tools such as bar or candlestick charts and trading volumes to determine the future behavior of a stock. Much of this practice involves discovering the overall trend line of a stock's movement.

Inflation- Decrease in the value2% inflation = $1.00 today = $1.02 later

Misc Items- cont 3Equity- Refers to total assets minus

liabilitiesGross vs Net Income

Gross is also called Revenue and is total income

Net is gross income minus expenses or liabilities

Financial PagesStock Name or Symbol (SYM)Closing Price- Price at the close of the previous dayNet Change- Change from the previous day to closing

price52 week Hi- Lo- Shows the range over the last yearDividend (DIV)- The value that is paid as a dividendYield (YLD)- Dividend as a percent of the closing pricePrice to Earning (P/E)- Ratio is obtained by dividing

the stock’s price by the company’s latest 12 month earning/share

Volume (VOL 100s)- 100s of share traded on the previous day