Title: Doing Business with a Broker
1Doing Business with a Broker
2Doing Business with a Broker
- Full service brokerage
- Discount brokerage
- Internet/on-line brokerage
3Doing Business with a Broker
- Full service brokerage
- Stocks and bonds
- Mutual funds
- Central asset accounts
- Retirement accounts
- Commodities trading
- Limited partnerships
- Certificates of deposit
4Doing Business with a Broker
- Full service brokerage
- Trained professionals to help
- Council on investment program fit to your needs
- Research department
5Doing Business with a Broker
- Consider order taker vs. advisor
6Doing Business with a Broker
- Mutual funds companies that serve as brokers
7Doing Business with a Broker
- Brokerage companies that provide in person
investment forums in local areas.
8Doing Business with a Broker
- Distrust of brokers
- Salesmen
- Conflict of interest
- Commission on purchases or sales (churning)
- Recent news
9Doing Business with a Broker
- Churning-
- Discretion accounts now are usually fixed fee, a
total value managed
10Doing Business with a Broker
- Full service brokers
- Know your client requirement
11Brokerage Guidelines(for you)
- Think!
- Know your firm
- Be skeptical of unsolicited offers
- Watch high pressure sales
- Doubt get rich quick ideas
- Understand risk vs. reward
12Brokerage Guidelines
- Get facts no tips or rumors
- Get on investment You have to learn before you
earn (T.D. Waterhouse) - Understand written information or find someone
who does - Consider investments as valuable propertythey
are!
13Doing Business with a Broker
- Brokered Certificates of Deposit
- Used by institutions to raise money for the
institution - Pays the brokerage to raise the money brokerage
will insure that the money is there - Saves promotion cost and uncertainty of selling
CDs on their own
14Doing Business with a Broker
- Brokered Certificates of Deposit
- Allows higher interest rates to buyer
- Provides flexibility in selling or cashing CDs
without penalty - Allows large amount rate on smaller amounts
- Others Check Money Magazine, Business Week,
others.
15Doing Business with a Broker
- Opening an account
- Information on you, your tolerance to risk, your
goals - You may trade right away
- Settlements in 3 days
- You will usually not get certificates
- You will receive monthly (or other period)
statements (snail or e-mail)
16Doing Business with a Broker
- Margin accounts
- Allows you to borrow up to 50 of securitys
value - May be necessary for certain types of
trading/accounts
17Doing Business with a Broker
- Types of accounts
- Individual
- Joint
- Trust
- Uniform Gift to Minors
18Doing Business with a Broker
- Broker
- Actually a registered representative
- account executive
- financial consultant
19Doing Business with a Broker
- If you are unhappy
- Change people
- Change firm
- Key is having the same values or philosophy
- --my experience
20Doing Business with a Broker
- Make sure that your broker understands what you
want - Kinross Gold Mines vs. Kindercare
21Doing Business with a Broker
- Incentives or production credits
- Provides incentive for broker to sell a
particular investment
22Doing Business with a Broker
- Remember, YOU are the decision maker. You can
not blame the broker for a judgment mistake
23Doing Business with a Broker
- Selling a stock
- Street name
- If certificates, sign, send and certify or
register
24Doing Business with a Broker
- Street name
- Convenient
- Can be transferred
- Will receive mail from company
- May be able to register with company separately
25Doing Business with a Broker
- Easy to change brokers
- May be a small fee
- All processing automatically
26Doing Business with a Broker
- Brokerage safety
- Liquidity protection
- Great safety record
- SIPC- Securities Investor Protection Corporation
500K minimum. Private insurance to 10M - Does not protect from investment risks
27Speculation
28Speculation
- Taking your chances
- Calculated risks
- Speculating, not gambling
29Speculation
- At any time, half of the people think that a
market (stock) will go up, half think that it
will go down. The resulting price is right in
the middle - -T. A. Sgritta
30Speculation
- Speculation reasoning
- Gambling chance alone
31Speculation
- Investor puts money into a security expecting a
given return or based on fundamentals, growth
and/or dividends over the long term. (Wants to
own the company) - Speculator puts money into a security expecting
that the short term demand will cause a quick
gain in the security invests for the security
rather than the fundamentals behind it.
32Speculation
- Penny Stocks
- Salt Lake City and other locations
- Less than 1 per share
- Little information
33Speculation
- Penny stocks, contd
- Innovation Chemical
- Venture, Inc. (Tires, inc)
34Speculation
- Major speculation movements
- 1950s Uranium mining
- 1970s McDonalds
- 1990s Dot com/Internet
35Speculation
- Short term vs. long term tax considerations
- Dividends marginal tax rate (usually)
- Short term capital gains ( 1 yr.) marginal tax
rate - Long term capital gains (1 yr.) lower rate
(max. 20 or 18) - Marginal tax rate
36Speculation
- Part of the cause of the great depression
- Discouraged by the government, hence the tax
system
37Marginal Tax Rates
38Marginal Tax Rates
39Buying Stocks on Margin
40Buying Stocks on Margin
- Buying stock on credit
- Making a down payment then borrowing the rest
- Currently the down payment is 50
41Buying Stocks on Margin
- Not for the nervous or poorly financed
- Minimum deposit required
- Stocks must sell for 5 or more per share
- Most often used by speculators
42Buying Stocks on Margin
- Regulation T has controlled the down payment
varying from 40 to 100 - Current amount is 50 (since 1974)
- During the depression, before regulation T, the
down payment was almost nothing
43Buying Stocks on Margin
- Interest is at the brokers loan rate plus a
percentage, depending on how much business you do
and possibly other factors. This is over prime
rate
44Buying Stocks on Margin
- Margin allows you to double the gain or loss of
the money you invest! In addition, you will pay
interest
45Buying Stocks on Margin
- Margin calls
- When your equity falls below 25 of the
investment possibly more. - The additional cash must restore at least the 25
level, usually higher.
46Buying Stocks on Margin
- Margin accounts are set on the value of the
entire account, not just the one stock. - If a margin call is not answered, the underlying
stock will be sold the broker will keep the loan
value first the owner will get what remains, if
anything.
47Buying Stocks on Margin
- Day traders
- People who go in and out of a stock in one day
sometimes they do in and out more than one time
per day.
48Buying Stocks on Margin
- Had a major impact on the great depression
- Down payments from 0 to 20
- Profits often rolled over into more margin
purchases
49Stock Screens
50Stock Screens
- Used to locate potential investments that meet
your criteria!
51Stock Screens
- Characteristics that may be of concern
- Industry
- P/E ratio
- Dividend yield
- Growth rate
- Book value
- Recent stock performance
- Analysts forecasts
- Cash flow
- Stock movement or volatility
52Stock Screens
- Value line
- Standard and Poors Outlook
- Yahoo
- Brokers!
53Stock Screens
- Glitches
- Bad data
- History is no predictor of the future
- Never let the screen make the final decision for
you
54Stock Screens
- Once the screen has filtered out companies for
you, you still need to evaluate the results
55Stock Screens
- Common issues Dividends
- May be greater than the earnings
- Common in REITs
- May return part of equity, which has some
favorable tax advantages - May indicate that the dividend will soon be
reduced or eliminated
56Stock Screens
- Common issues P/E ratio
- P/E ratio may be higher or lower than others in
the same industry - May indicate better or poorer outlook for the
company - May indicate a special situation
- May indicate a good or bad buy
57Stock Screens
- Common issues stock is not available
- Try other screens
- There may not be enough volume to warrant
inclusion in the list - You may not have the right name or symbol