Securities Markets and Investments

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Securities Markets and Investments

• Should I Invest In the Stock Market?

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Should I be An Investor?

• You bet your sweet
• B
• I
• P
• P
• Y

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Whats A BIPPY?

• B rains ability to think
• I nformed actively seek information
• P articipatory managing your own money
• P atience dont trade small profits /losses
  dont get spooked
• Y outh - start early

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Start Early

• 115/ mo. _at_ 11 40yr. 1,000,000
• (wait 10 years) 30yr. 350,000
• 10,000 deposit 40yr 1,000,000
• 1.00 brown bag vs. 5 eat out 581,826
• 115/mo _at_ 4 (bank) 40yr. 297,000

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What If I Pick the Wrong Stock?

• Diversification manage your risk
• Dont put all your eggs in one basket!
• Diversification for Dummies
• Invest in (buy shares) SP 500 Index Fund
• A mutual fund (investment vehicle) that invests
  in and whose performance will track 500
  pre-eminent companies. Otherwise known as THE
  MARKET.

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Investment Perspectives

• Bull Market
• Investors believe stock prices are rising
• Long Position
• Buy low, sell high.

• Bear Market
• Investors believe stock prices are falling
• Short Position
• Sell high, buy low

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Investment Goals

• Safety
• Income

• Speculation
• Growth

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What are stocks?

• Represent an ownership interest in a company
• Stockholder rights privileges
• voting rights
• dividend distribution
• claim against assets
• Common stock v. Preferred stock

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Types of Stock

• Preferred
• Set annual dividend amount
• Paid before common.
• May get dividend for every year. (cumulative)
• Paid before common on liquidation
• No voting rights
• Price not as volatile as common

• Common
• No dividend guarantee
• Voting rights
• Get paid last upon liquidation (residual claim)
• Lions share of Profits or Losses
• Price volatility (Risk / Return)

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The Market

• The Primary Market
• Buying stocks directly from the issuing company
• IPO Initial Public Offering
• The Secondary Market
• Security Exchanges NYSE, AMEX
• Member brokers buy and sell stocks of various
  companies
• OTC Market (Over The Counter) NASDAQ
• Electronic Market

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The Order Process

• Contact broker
• Full Service or Discount
• Personal or Internet
• Place Order
• Market order
• Limit order
• Stop Loss
• Order Confirmation
• Cash Account
• Margin Account

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Stock Quotes

• What do the terms mean?
• High/Low
• Symbol
• Dividends
• Yield

• P-E Ratio
• Sales vol. in hundreds
• High
• Low
• Close Price
• Net Change

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Earnings Per Share

• Net income of outstanding common shares
• Rev 1,000,000
• Exp 600,000
• Net Inc 400,000
• of shares 200,000
• EPS 2.00 /share

• Amount of income allocated to each share of
  common stock.

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Risk Return

• Risk / Return Relationship
• Increase Risk should Increase Return.
• Rate of Return profit / investment
• Always evaluate the performance of your
  investment in relation to how much risk you
  assume.
• Risk Continuum from safest to riskiest
• Treasury Bonds - State/City Bonds - Corp. Bonds -
  Preferred Stocks - Common Stocks - Warrants -
  Options - Commodities

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Risk Return
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Price Earnings Ratio

• Measure of investor confidence in company.
• Stock Price / EPS
• Stock Price 20/ 2.00 EPS PE Ratio of 10
• Kelloggs Bran vs. Generic Bran
• 3.20 Stock Price
  2.40
• 32 oz EPS 32 oz
• Price / oz. 1.00 PE Ratio
  .75
• Relative measure - it enables us to compare
  companies.
• General projection of future value based on
  expected earnings

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Balance Sheet

• Assets
• Cash, Accounts Receivable, Inventory - CURRENT
• Buildings Equipment- FIXED
• Goodwill- OTHER
• Liabilities
• Accounts Payable, Taxes Payable - CURRENT
• Mortgage, Notes Payable - LONG TERM
• Equity- owners investment, retained earnings

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Balance Sheet - Ratios

• Current Ratio
• current assets / current liabilities
• 2 - 1 is good
• Quick Ration or Acid Test
• Cash A/R / Current Liabilities
• 1 - 1 is good
• Debt Equity
• Liabilities / Equity
• less than one is good (compare industry)

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Income Statement

• Gross Revenue Foolish Rule gt 10
• - Cost of Goods Sold
• Gross profit Foolish Rule 50
• - Operating General Expenses
• Earnings Before Interest Taxes (EBIT)
• - Interest Taxes
• Net Income (Earnings) Foolish Rule 7

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Income Statement Ratio

• Gross Profit Margin
• Gross profit / Gross Revenue (50)
• Net Profit Margin (Return on Sales)
• Net Income / Gross Revenue (7)
• Inventory Turnover
• Sales / Average Inventory (larger the better)
• Accounts Receivable Turn
• Sales / Average A/R balance ( larger the better)

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Combination Ratio

• Return On Equity
• Net Income / Equity
• Income Statement / Balance Sheet
• Rate needs to be better than other investments
  with lower risk.