Stock Market Basics: Understanding Investments and Terms

1. Stock Market

2. The Stock Market • Investing in Stocks & Bonds • 􀀀 Stocks - shares of ownership • 􀀀 Stocks & bonds are also known as SECURITIES

3. Two Types of Stock • 􀀀 Common Stock • 􀀀 All profit-making corporations must offer • 􀀀 Holders participate directly or indirectly in the management of the company. • 􀀀 Receive DIVIDENDS (return on their investments) • 􀀀 Preferred Stock • 􀀀 Gives holders certain privileges • 􀀀 Paid dividends first • 􀀀 Generally no voice in the company

4. Stock Terms • 􀀀 Blue Chip Stocks • 􀀀 Refers to the stocks of the largest, most consistently profitable corporations. • 􀀀 Income stocks • 􀀀 Stocks that pay dividends regularly • 􀀀 Growth Stocks • 􀀀 Pay little or no dividend, while reinvesting their profit

5. The Value of Stock • 􀀀 Capital Gains • 􀀀 The profit from selling stock at a higher price than they paid for it. “Timing it right” • 􀀀 Buy low, sell high • 􀀀 Capital Losses • 􀀀 The lost money from selling stock at a lower price than you paid for it. • 􀀀 Dividends • 􀀀 Portion of the company’s profit paid out to its shareholders

6. Those involved in stock transactions: • 􀀀 Stockbroker • 􀀀 A dealer who specializes in stock transactions. • 􀀀 Stockholder (Shareholder) • 􀀀 One who owns stock.

7. Investments

8. Mutual Funds • 􀀀 A professionally-managed form of collective investments that pools money from • many investors and invests it in stocks, bonds, and other securities. • 􀀀 Bonds • 􀀀 Written promises to pay back by the issuer of the bond to the lender plus interest

9. Stock Exchanges • 􀀀 Stock exchanges are trading markets where stocks & bonds are bought and sold. • 􀀀 NYSE • 􀀀 AMEX • 􀀀 NASDAQ • TSX

10. Securities Markets • 􀀀 Deal primarily with stocks and bonds • 􀀀 Purpose is for businesses to acquire investment capital • Ex. NYSE/NASDAQ • Not all markets are the same. Different rules for buying and selling. • 􀀀 NASDAQ • 􀀀 Computer based, deals with technology and new companies. Growth stocks. • 􀀀 NYSE • 􀀀 Floor-based, brokers represent investors. Deal with blue chip companies. Income stocks.

11. Regulation of Financial Markets • 􀀀 Assurance that those who conduct business with the public do so in a professional and ethical manner in • compliance with industry rules. • 􀀀 Ex. Securities & Exchange Commission (SEC)

12. Factors that affect stock prices: • 􀀀 Actions of investors • 􀀀 Business conditions • 􀀀 Government actions • 􀀀 Economic indicators • 􀀀 International events and conditions

13. Additional Terms: • 􀀀 Initial Public Offering (IPO) - To take a company public, to make it possible for investors to buy the stock. • 􀀀 Stock Split - More shares created at lower price per share; stockholders profit if price goes up. • 􀀀 Reverse Split - Exchange more stocks for fewer stocks, and the price increases accordingly. • .

14. Bulls, Bears, and the Pigs • 􀀀 The Bulls - A bull market is a stock market with rising prices over an extended period of time. • 􀀀 The Bears - A bear market is a stock market with falling prices over an extended period of time. • 􀀀 The Pigs - A pig is a greedy animal. Stock buyers who try to make every last cent of gain on an investment • may end up with losses.