Stock%20Market%20Basics

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Stock Market Basics
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WHAT IS A STOCK?

• A stock represents partial ownership of a
  corporation.
• When you buy shares of a stock, the company gives
  you a stock certificate which shows that you own
  a small fraction of that company.
• In today's computer age, you won't actually get
  to see this document because your brokerage keeps
  these records electronically.

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WHY SELL YOUR STOCK?

• A company sells shares of its stock as one way to
  raise capital to fund the growth of its business.
• The BEAUTY of the Deal is that a company does not
  have to pay the money back.

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WHAT DETERMINES A STOCK PRICE?

• A stock is worth what an investor is willing to
  pay for it
• Supply and demand decide a stock's price.
• Supply number of shares a company has issued to
  the public.
• Demand investors' desires to buy shares from
  current owners.
• Investors will purchase a stock if they think
  they will make a profit. (BUY LOW SELL HIGH!)

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WHY OWN STOCK?

• When the company makes money, so do you.
• Owning a stock means you are a partial owner of
  the company, and you get voting rights in certain
  company issues
• Over the long run, stocks have historically
  averaged about 10 annual returns
• However, stocks offer no guarantee of any returns
  and can lose value, even in the long run
• Investments in stocks can generate returns
  through dividends, even if the price stays the
  same

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Stock Example

• Lets say company X issues 10 shares of stock to
  raise Capital
• You buy 1 share _at_ 10.00 p/s
• Later this same year the company is doing very
  well. Lots of people want to invest in this CO.
  You are able to sell your share for 14.00 p/s.
• Google Stock
• 1-Oct-04, 132.58 21-Aug-07, 506.61

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Why own stock?

• GOOD INVESTMENT
• If you invest wisely, over time you will make
  more money investing in the stock market then
  putting your money into a savings account

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THE DOWNSIDE

• When you buy shares of a stock, you get a full
  share of the risk of an operating business.
• Owning stock does not guarantee that you make
  money

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EXAMPLE

• Theglobe.com
• Heard it was a very hot Internet stock.
• However, you didnt do too much research but
  bought 100 shares at over 100 per share.
• A few months later, the share price is less than
  10.
• Your hard-earned savings are now gone.
• Some stocks may even go bankrupt and you could
  lose even more money.

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WHY DO COMPANIES ISSUE STOCK?

• Primary Reason to generate that will be
  used to
• develop new products
• buy more advanced equipment
• pay for new buildings and inventories
• hire more employees
• provide for a merger or acquisition

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DIVIDEND

• A small reward a company pays you for owning
  shares of its stock.
• The company takes a portion of its earnings,
  which it divides and distributes to shareholders.
  
• SLOW GROWTH HIGH DIVIDENDS
• HIGH GROWTH NO DIVIDENDS
• EXAMPLE MICROSOFT
• HIGH GROWTH COMPANY
• DOESNT PAY DIVIDENDS
• REINVESTS THOSE DIVIDENDS BACK INTO THE COMPANY
  (back)

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STOCK SPLIT

• When a public company issues more shares of stock
  to existing shareholders.
• WHY? So that more investors can afford the stock
• In a 2-for-1 stock split, a company issues
  another share for every one already sold.
• EXAMPLEyou own 100 shares of IBM trading at
  120. They announce a 2-for-1 split and you now
  have 200 shares, and the share price is 60.

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GROUP QUIZ

• WHAT IS A STOCK?
• LIST 2 REASONS WHY YOU WOULD WANT TO OWN STOCK
• LIST ONE REASON WHY COMPANIES ISSUE STOCK
• YOU OWN 5 SHARES OF DISNEY CO. at 100 PER SHARE.
  DISNEY ANNOUNCES A 2 FOR 1 STOCK SPLIT.
• HOW MANY SHARES DO YOU NOW OWN?
• HOW MUCH IS EACH SHARE NOW WORTH?

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MEASURING STOCKS

• DOW JONES INDUSTRIAL AVERAGE
• Shows generally how well the market is going
• Found by averaging the prices of 30 industrial
  blue-chip stocks trading in the New York Stock
  Exchange
• Blue chip stock are the most valuable, from the
  largest companies

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COMPANIES INCLUDED IN THE DJIA

• Alcoa Inc 3.138
• American Express 6.510
• AtT 2.498
• Boeing Co. 1.714
• Caterpillar Inc. 1.877
• Citigroup Inc. 2.553
• Coca-Cola Co. 2.330
• DuPont Co. 2.480
• Eastman Kodak Co. 2.700
• Exxon Mobil Corp. 3.809
• General Electric Co. 6.543
• General Motors Corp. 3.861
• Home Depot Inc. 2.804
• Honeywell International Inc. 2.250
• Hewlett-Packard Co. 6.412

• International Business Machines 5.218
• Intel Corp. 5.885
• International Paper Co. 1.785
• J.P. Morgan Co. 5.766
• Johnson Johnson 3.769
• McDonalds Corp. 1.592
• Merck Co. 2.930
• Microsoft Corp. 4.672
• Minnesota Mining and Manf. 4.042
• Philip Morris Cos. 0.982
• Procter Gamble Co. 2.866
• SBC Communications Inc. 2082
• United Technologies Corp. 2.688
• Wal-Mart Stores Inc. 2.517
• Walt Disney Co. 1.711

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STANDARD AND POORS 500 INDEX

• A.K.A. SP500
• A well-known, value-rated index of 500 major US
  companies 400 industrial firms, 20
  transportation firms, 40 utilities firms, and 40
  financial firms
• Like the Dow Jones Industrial Average, shows how
  the market is doing by averaging the stock prices
  of these 500 companies

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Where are stocks traded?

• 2 major U.S. markets
• NEW YORK STOCK EXCHANGE (NYSE)
• NASDAQ STOCK EXCHANGE

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HOW ARE STOCKS BOUGHT and sold?

• BUYERS
• Do research on company and price
• Place an order (either online or with broker)for
  x amount of shares for x amount of
• Order is sent to NYSE floor
• Transaction occurs
• Order confirmation sent
• Pay for stock and stockbroker commission

• SELLERS
• Decide to sell x amount of shares for x amount of
  
• Place a sell order (either online or with broker)
  
• Sell order is sent to NYSE floor
• Transaction occurs
• Sell confirmation sent
• Check sent to seller minus stockbroker commission

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portfolio

• A stock portfolio is a collection of stocks that
  an investor owns at a particular point in time.
• Information contained in a portfolio
• Parent company name http//www.google.com/
• (example Oreo cookies owned by Nabisco which
  is now owned by Kraft Foods)
• Stock Quote (price that the stock is trading at)
• Stock exchange symbol http//finance.yahoo.com

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