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INVESTING OPTIONS

INVESTING OPTIONS. Putting it together to build your wealth. What we will cover…. STOCKS BONDS MUTUAL FUNDS EXCHANGE TRADED FUNDS REAL ESTATE FUTURES CONTRACTS COLLECTIBLES COMMODITIES (INCLUDING CURRENCY) PUTTING IT ALL TOGETHER USING MODERN PORTFOLIO THEORY. Investing Option. STOCKS.

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INVESTING OPTIONS

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  1. INVESTING OPTIONS Putting it together to build your wealth

  2. What we will cover… • STOCKS • BONDS • MUTUAL FUNDS • EXCHANGE TRADED FUNDS • REAL ESTATE • FUTURES CONTRACTS • COLLECTIBLES • COMMODITIES (INCLUDING CURRENCY) • PUTTING IT ALL TOGETHER USING MODERN PORTFOLIO THEORY

  3. Investing Option STOCKS

  4. STOCKS What is a Stock and How Does the “Market” work?VIDEO

  5. STOCKS STOCK – OWNERSHIP IN A CORPORATION (Also called: Shares, Equities, Securities)

  6. STOCKS

  7. STOCKS STEPS NEEDED FOR A COMPANY TO ISSUE STOCK: • Incorporate Business and Get a Charter • Find an Investment Banker to issue an Initial Public Offering (IPO) • File and Register with the Securities and Exchange Commission • List Securities on an Exchange

  8. STOCK EXCHANGES NYSE– Euronext “New York Stock Exchange” • Largest stock exchange in the world • Over 8,000 listings • Total capitalization of $14.2 trillion • Only exchange that still has brokers on the floor NASDAQ “National Association of Securities Dealers Automated Quotations” • Second-largest stock exchange in the world • 2,711 listings, • Total capitalization of over $4.5 trillion. • The NASDAQ has more trading volume than any other electronic stock exchange in the world.

  9. HOW TO GET LISTED: • Caters to well-established companies (IBM, FORD, etc…) • At least 1.1 million shares of stock outstanding • Boast pre-tax profits of $10 million or more over the last three years • Have a global MARKET CAPITALIZATION (number of shares outstanding X stock price) of at least $750 million

  10. HOW TO GET LISTED: • Gained prominence by trading cool high tech companies (Microsoft, Intuit, Dell) • Sometimes called OVER THE COUNTER (OTC) Market – no trading floor to see • At least 1.25 million shares outstanding • Pre-tax income of at least $11 or more over the last three years • Market cap of $70 million or more

  11. TRADING ON THE NYSE • Watch a Trade:

  12. TRADING ON THE NYSE WHO’S WHO ON THE FLOOR? Designated Market Makers (DMMs) 1. Barclays Capital2. GETCO Securities, LLC 3. Goldman Sachs & Co.4. Knight Capital Group, Inc.5. J. Streicher & Co., LLC6. Virtu Financial Capital Markets, LLC Trading Floor Brokers Supplemental Liquidity Providers

  13. TRADING ON THE NYSE Designated Market Makers (DMMs) • Trade in booths in the center of the floor • Each DMM only deals with specific stocks (50-100 companies) • Execute trades for those stocks only Trading Floor BrokersOn outside walls of floor, investment firms need to “buy seats” to have their brokers there on the floor • Can trade in all stocks • Execute Trades with DMMs • Trading floor brokers use e-Broker hand-held devices, e-Quotes, and algorithm programs to achieve individual parity with DMMs and the NYSE Display Book.

  14. TRADING ON THE NYSE Designated Market Makers (DMMs) • Also called, “Specialists” arrange the Opening and the Close • Trade in booths in the center of the floor • Each DMM only deals with specific stocks (50-100 companies) • Execute trades for those stocks only Trading Floor Brokers • On outside walls of floor, investment firms need to “buy seats” to have their brokers there on the floor • Can trade in all stocks • Execute Trades with DMMs • Trading floor brokers use e-Broker hand-held devices, e-Quotes, and algorithm programs to achieve individual parity with DMMs and the NYSE Display Book.

  15. Types of STOCK

  16. Types of STOCK PREFFERED STOCK - a type of stock that gives the owner a set dividend that does not fluctuate based on how well the company performs • Preferred stockholders receive their dividends BEFORE common stock holders • Sometimes have limited voting rights COMMON STOCK - what most of us own. • Entitles stockholder to voting privileges • May receive a dividend if the company does well, dividends will fluctuate from quarter to quarter

  17. Types of STOCK GROWTH STOCK– company reinvests profits in an attempt to grow their business. Stockholders, therefore, rarely receive dividends. VALUE STOCK – the company is well established and not trying to grow market share, so it usually gives dividends to stockholders. vs

  18. Types of STOCK BLUE CHIP STOCK – from large companies with a long history of strong market performance PENNY STOCK – stocks usually trading at less than $1.00, but never more than $5.00. They have high volatility. vs

  19. Types of STOCK CYLICAL STOCK – stock from companies that are very much affected by the whims of the market DEFENSIVE STOCK – stock from companies that maintain their value even through recession because people NEED their products vs

  20. What type of stock is it?

  21. What do people mean by “THE MARKET”

  22. AVERAGES AND INDEXES DOW JONES INDUSTRIAL AVERAGE (DJIA), the “DOW” • Tracks the 30 largest “blue-chip” companies • Chosen by the Wall Street Journal • Add up price of a single stock from each of the 30 and divide by a special divisor The Dow Divisor is currently 0.132129493. Presently, every $1 change in price in a particular stock within the average, equates to a 7.57 (1/0.132129493) point movement.

  23. AVERAGES AND INDEXES

  24. AVERAGES AND INDEXES STANDARD & POOR’S 500 (S&P 500) • Tracks 500 large companies that together account for some 75% of the entire US stock market • Weighted average market capitalization Take market cap of each stock and sum them all up and divide by a special divisor

  25. AVERAGES AND INDEXES

  26. AVERAGES AND INDEXES S&P MidCap 400 • Tracks 400 medium sized companies S&P SmallCap 600 • Tracks 600 small companies

  27. AVERAGES AND INDEXES NASDAQ 100 • Tracks 100 top stocks from the NASDAQ • Focuses on tech and biotech • One of the most volatile indexes Take market cap of each stock and sum them all up and divide by a special divisor The formula for the divisor is as follows: • (Market Value after Adjustments/Market Value before Adjustments) X Divisor before Adjustments

  28. AVERAGES AND INDEXES BEAR MARKET • Averages and indexes are going down BULL MARKET • Averages and indexes are going up

  29. AVERAGES AND INDEXES December 29, 2006

  30. AVERAGES AND INDEXES December 31, 2008

  31. What the HECK happened? MAJOR STOCK MARKET DECLINES: October 19, 1987 (Rachel and Alex) October 27, 1997 (Zabron) September 17, 2001 (Tyler and Eric) Sept-Oct, 2008 (Jancas and Pat) May 6, 2010 (Jessica & Andrea) August , 2011 (Alexa and Samantha)

  32. Some Fundamental Stock Measurements

  33. CASH FLOW PER SHARE Let’s you see what you are paying for a share of the company’s cash flow Computation: Company’s cash flow (stream of cash through the business) / number of shares outstanding

  34. CURRENT RATIO Most popular gauge of a company’s ability to pay its short-term bills. Let’s you see if the company can handle unexpected expenses or opportunities. Look for companies with a current ratio of at least 2-to-1 Computation: Company’s Assets / Company’s Liabilities

  35. DIVIDEND YIELD Shows you the company’s annual dividend in relationship to its stock price. Look at Dividend Yield over time and you want to see it going up. Computation: Annual Cash Dividend / Current Price of Stock

  36. EARNINGS PER SHARE (EPS) Shows the company’s earnings in relation to the number of shares of stock outstanding. The bigger the number, the better. Computation: Company’s Earnings (reported on Annual Statement) / Number of shares outstanding

  37. NET PROFIT MARGIN A high profit margin tells you a company is good at managing and controlling costs. Computation: Revenue/Expenses

  38. PRICE PER SHARE (P/E) RATIO Allows you to compare many stocks by determining how much you are paying for a company’s earning power. The higher the P/E, the more risky – but potentially more rewarding Computation: Earnings per share / stock price

  39. RETURN ON EQUITY (ROE) Shows how much money the company is making off the investments that shareholders have made. A good ROE is anything above 20% Computation: Net Income/Total Shareholder’s Equity

  40. VOLUME The amount of stock that’s traded on any given day, well or another other time period. Measures market “interest” on stock. Rising volume on a rising stock price shows something good is going on at the company

  41. All About BONDS

  42. What are BONDS? • A bond is a debt security, similar to an I.O.U. • Also called bills, notes, debt securities, or debt obligations.

  43. BONDS WHY DO COMPANIES ISSUE BONDS? • TO RAISE MONEY • When you purchase a bond, you are lending money to a government, municipality, corporation, federal agency or other entity known as an ISSUER. WHY DO PEOPLE BUY/SELL BONDS? • Issuer promises to pay a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it matures, or comes due.

  44. How BONDS Work: • You pay $1,000 for a 15 year AT&T Bond at 7.5% interest/year. • Each year, you get $75 (1000*.075) • After 15 years, you get your $1000 back TOTAL EARNED = $75*15 years = $1125

  45. BASIC BOND CHARACTERISTICS

  46. BASIC BOND CHARACTERISTICS

  47. BOND BASICS5-6% Return Over Time

  48. READING A BOND • Bond Name • Coupon rate • Maturity Date • Current Bid (expressed as a percentage of par value) • Yield – annual return until the bond matures

  49. MUTUAL FUNDS

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