Title: An Introduction to Stocks
1An Introduction to Stocks
2Stock Basics(What are stocks?)
3What 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
its stockholder (also called shareholder)
4Stock Market Basics
- Stock Certificates
- A printed legal document showing ownership.
- In our digital age they have become less common
5What is a stock?
- Stock symbols
- Set of letters that represent a security traded
on an exchange - Ex. MSFT, GS, AAPL, MA, BUD, LUV
6How 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)
7Stock Types
- Preferred Stock ownership in a corporation that
gives you the first right to dividends - Common Stock basic form of ownership of a
corporation
8Stock 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
9Stock 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
10The Indices (index)
- Imaginary collection of stocks that is supposed
to represent the stock market - SP 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))
11What 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
12Economic 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.
13Why invest? Why stocks?(What about my savings
account?)
14Why 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.
15Determining 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
16Why the Stock Market?
1976-2000 1976-2000
Investment Average Annual Return Average Annual Return
SP 500 SP 500 11
Small-Company Stocks Small-Company Stocks 12
U.S. Treasury Bonds (short-term) U.S. Treasury Bonds (short-term) 4
U.S. Treasury Bonds (long-term) U.S. Treasury Bonds (long-term) 5
Savings Interest Rate Savings Interest Rate 1-3
Inflation Inflation 2-3
Source The Motley Fool Guide How to Start Investing Source The Motley Fool Guide How to Start Investing Source The Motley Fool Guide How to Start Investing
17You can make good money (But dont forget, you
can lose a lot of it too)
NASDAQ (1999-2001)
50 loss in 1 year
136 Gain in less than 1 year
18Apple Computers (750 in 24 months)
19Urban Outfitters (330 in 23 months)
20Advantages 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
21Disadvantages 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)
22Mutual 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)
23The 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
24What is Your Risk Tolerance?
Source Investopedia. Determining Risk and The
Risk Pyramid. May 2 2003