Common Stock Investing Appendix B, Part VI Are Stock Market
Indices and Stock Prices Leading Economic Indicators? Is this
Information Useful?
Slide 2
Heres what you get when buying Stock Committee on Uniform
Securities Identification Procedures OWNERSHIP IS FREELY
TRANSFERABLE
Slide 3
How are Stock Prices reported? The Dow 30 Largest and Most
Widely Held Public Companies Standard & Poors (S&P) 500
Large-Cap (>$3B) Companies traded on NASDAQ and NYSE National
Association of Securities Dealers Automated Quotations 3,000
US/Foreign Growth/Technology Stocks
Slide 4
Why is a Stocks Price (Value?) what it is? EFFICIENT MARKET
HYPOTHESIS Stock Prices Reflect All Publically- Available
Information Theory: Prices are Never Under- or Over-Valued CANT
BEAT MARKET
Slide 5
Isnt it all about Interpreting Information? How does
Information effect a Firm, its Industry and the Economy? "I'd be a
bum in the street with a tin cup if the markets were efficient."
"I'd be a bum in the street with a tin cup if the markets were
efficient."
Slide 6
RISK RISK (effects Value) CA $ H If, When and How Much CA $ H
EXPECTED RATE OF RETURN Risk Aversion (%) Whats the VALUE of an
Asset (Stock)? Future CA $ H to be Received while Owning Asset For
Stockholders = Companys Future Net Income Future CA $ H to be
Received while Owning Asset For Stockholders = Companys Future Net
Income
Slide 7
Net Income (EPS) Expected Rate of Return Expected Rate of
Return = Value * How much Less? Factor in Margin-of-Safety
(Contingency ) Compare Your Value to Markets Price If Price less*
than Value, then Buy
Slide 8
Risk-Free Rate of Return (2 Yr. Treasury) + Systematic Risk
(Inflation CPI Change) + Equity Risk Premium (Firm Specific Risk)
Total = Rate that Compensates for All Ownership Risks If Expected
Rate of Return measures Risk, How to Calculate it?
Slide 9
How is a Stocks Price reported? ttm = Twelve Trailing Months S
EPS = Earnings (Net Income) Per Share $70 to $90 = 29% Gain Dont
Forget Cash Dividends
