Excerpts Taken from slideshow of Jason Lee An Introduction to Stocks

Excerpts Taken from slideshow of Jason Lee

An Introduction to Stocks


Stock Basics(What are stocks?)


What is the stock market?

• Refers to buying and selling of shares, or stock, in all kinds of companies, both in the United States and around the world.

• Anyone who owns purchases stock in a company is it’s stockholder (also called shareholder)


Stock Market Basics:

• Stock Certificates • A printed legal document showing

ownership. • In our digital age they have become less

common


What is a stock?

• Stock symbols• Set of letters that represent a security traded on

an exchange • Ex. MSFT, GS, AAPL, MA, BUD, LUV


How to Make Money on Stocks

• Dividends – • money given to stockholders by the

company from company profits• NOT ALL STOCKS PAY DIVIDENDS

• Stock Sell – • Stock changes value based on what people

are willing to pay for the stock• You can sell the stock through a brokerage

firm and collect the cash value• You can sell the stock and buy other

stocks in its place (called a trade)


Stock Types:

• Preferred Stock – ownership in a corporation that gives you the first right to dividends

• Common Stock – basic form of ownership of a corporation


Stock Market Terms:

• Market Value – the price at which a share of stock can be bought and sold in the stock market

• Stockbroker – a licensed specialist in buying and selling stocks and bonds


Stock Exchange

• Business organization that accommodates the buying and selling of securities Exchanges

• Lists stocks and sets policies for how stocks are traded

• Major exchanges• New York Stock Exchange (NYSE)• American Stock Exchange (AMEX)• NASDAQ


The Indices (index)

• Imaginary collection of stocks that is supposed to represent the stock market

• S&P 500 • (500 largest companies on US stock Market)

• Dow Jones • (30 most significant stocks in the stock market)

• Nasdaq Composite• (index representing all the stocks on the Nasdaq(tech))


What Causes Stock Prices to Change?

• Supply and Demand

• Earnings (expectations)

• Sentiments, attitudes, & sense of greed

• Economic Indicators

• Follow the leader

• Manipulation

• LOTS of different theories


Economic Factors!

• Inflation/Recession – Higher prices can result in lower spending by consumers, reducing company profits.

• Interest Rates – As the cost of money changes, company profits can increase or decline.

• Consumer Spending – Profits of companies that sell products and services to households are directly affected by buying habits.

• Employment – As people obtain or lose jobs, the amount of money they have for spending will affect company profits.


Why invest? Why stocks?(What about my savings account?)


Why Invest?

• Opportunity to Make Money!!!• Short Term vs. Long Term Goals

• Long Term• Buying a new house, car, etc.

• Short Term• Buying food, gasoline, books, clothes, etc.


Determining Your Financial Goals

• Investing is a long car trip. There needs to be a lot of planning that goes into it.• How much money do you want to make? By when?• Will you need to live off your investments in future

years?• What will you be using your money for?

• Having a good understanding of yourself will allow you to align your risk tolerance with various strategies

• Think about your risk tolerance, time horizons for your investments, and your time commitment


1976-2000

Investment Average Annual Return

S&P 500 11%

Small-Company Stocks 12%

U.S. Treasury Bonds (short-term) 4%

U.S. Treasury Bonds (long-term) 5%

Savings Interest Rate 1-3%

Inflation 2-3%Source: The Motley Fool Guide: How to Start Investing

Why the Stock Market?


136% Gain in less than 1 year

NASDAQ (1999-2001)+50% loss in

1 year

You can make good money…(But don’t forget, you can lose a lot of it too)


Apple Computers (+750% in 24 months)


Urban Outfitters (+330% in 23 months)


Advantages of Stock Market Investing

• You can choose companies in which you want to invest money

• Many companies pay a dividend

• Opportunity to make money

• You can track your investment growth on the Internet or newspaper

• You can plan your future by investing

• Support our economy


Disadvantages of Stock Market Investing!

• Not guaranteed to make a profit

• You may lose your future investment plan

• Current events can play a major role in the market (September 11, 2001, etc)

• Companies may lie about profits and sales to persuade investors (Enron, Martha Stewart, etc)


Mutual Funds

• Funds in which investment professionals manage your money and decide on the investments

• These funds often amount to millions and billions of dollars and come in a variety of types

• Advantages• Simplicity / Professional Management /

Diversification / Liquidity / Usually Low Risk• Disadvantages

• Fees (and lots of them)


The Risk / Return Tradeoff

• “principle that potential return rises with an increase in risk”• Low risk with lower returns, high risk with

high returns

• Important to know your personal risk tolerance when choosing investments• Balance between risk and reward


Source: Investopedia. “Determining Risk and The Risk Pyramid.” May 2 2003

What is Your Risk Tolerance?

Documents

Excerpts Taken from slideshow of Jason Lee An Introduction to Stocks