BASIC NAIC INVESTING CLASS

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BASIC NAIC INVESTING CLASS
BASICS
National Association of Investors
CorporationAlabama Chapter
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COURSE OUTLINE

• INTRODUCTION TO NAIC
• NAIC METHOD PURPOSE AND INVESTING
  PRINCIPLES
• BASIC INVESTMENT TERMS
• RULE OF 72 AND RULE OF 5

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Purpose - Take Control

• Make your own decisions.
• Your choice.
• Your own study.
• Your own judgment.

• The more experienced you become, the easier and
  faster the process will be.

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Stocks, Bonds, Cash, and Inflation
1925 - 1997
Ending Wealth
Average Return
10,000
1,000
100
10
1
.10
1925
1935
1945
1955
1965
1975
1985
1997
Hypothetical value of 1 invested at year-end
1925. Assumes reinvestment of income and no
transaction costs or taxes.
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The NAIC Principles
Invest regularly, regardless of market outlook
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Reinvest All Earnings
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Additional Rules
The market goes up and the market goes down.
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Invest in Growth Companies
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Diversify by Industry and Company Size
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By Company Size
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Diversification - By Cycle/Size
n
y
S
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Price / Earnings Ratio (P/E)

• Relationship between the cost of a share and the
  earnings for each share.

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Price / Earnings Ratio (P/E)

• Examples
• When price increased and earnings stayed the
  same, P/E increased.

Share Price 10 Share Earnings 2 P/E is 10
/ 2 or 5
Share Price 18 Share Earnings 2 P/E is 18 /
2 or 9
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Basic Investment Math
Stock selling _at_ 25 share today In 5 years should
sell _at_ 50 share That is a 100 increase 100 /
5 20 gain per year But 20 is more than 15?
Which is Correct - Both are
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Basic Investment Math
20 is Simple Interest 15 is Compound Interest
30
10
20
40
5
15
Simple
Compounded
15
5
10
25
20
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Averaging Numbers
Steps Add all the figures to obtain the
total. Divide the total by the number of
figures. Example Average the following 5, 12,
13 5 12 13 30 30 / 3 10
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Rounding Numbers

• Determine the decimal point being rounded.
• If number following decimal point is between 0
  and 4, round down.
• If number following decimal point is between 5
  and 9, round up.

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Rounding Numbers

• Examples
• Round 73.465 to a full number.
• Round 73.465 to one decimal place.

The number following is between 0 and 4. Drop all
numbers starting with 4. Result is 73
The number following is between 5 and 9.
Increase the previous number by one and drop the
remaining numbers. Result is 73.5
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Percentage Of Increase

• Steps
• Subtract the old number from the new number to
  obtain the difference.
• Divide the difference by the old number.
• Multiply result by 100 to convert to percentage.

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Percentage Of Increase

• Example
• Find the percentage of increase from 1995 to
  1996.
• 1996 291.14
• 1995 207.32
• 291.14 - 207.32 83.82
• 83.82 / 207.32 .4043
• .4043 x 100 40.4

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Rule Of 72
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Rule Of 5

• For every 5 stocks purchased
• One will far exceed expectations
• Three will perform as expected.
• One will experience unforeseen difficulties.

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Questions?