Presentation Transcript

1. Personal Finance

   Investing: Part II – AAS (All About Stocks)
2. Today’s Discussion What are Stocks? Different Types of Stocks How Stocks Trade What Causes Stock Prices to Change How to Read Stock Quotes Bulls vs. Bears
3. Stocks - Introduction One of the greatest tools for building wealth Cornerstone of nearly any investment portfolio Anyone can get into stocks!
4. Stocks - Introduction Remember expectations “Hot” stock tips The fear mentality Stocks can create massive wealth But NOT without risk Protect yourself with knowledge
5. Stocks – What are stocks? Stock = Share of ownership in a company. Every share represents a small piece of the company Claim on company’s assets and earnings Without this claim, stock wouldn’t be worth JACK, it would just be a piece of paper.
6. Stocks – What are stocks?
7. Stocks: Your ownership rights Entitled to a portion of company’s profits Sometimes paid out in form of DIVIDENDS Your claim on company’s assets Only relevant if company goes bankrupt Credits get paid first, shareholders get what’s left over Limited Liability Most you can lose is your investment
8. Stocks: Being an Owner What you can’t do Microsoft Example Pepsi Example Day-to-Day Management What you can do Vote for Board of Directors Vote on mergers B.O.D. oversees management
9. Stocks – How they make you $$$$. Dividends Dividend Yield Dividend Paid / stock price = Dividend Yield Stock price increases (Buy low, sell high)
10. Stocks – Why do companies issue stock? Companies issue stock to raise money They can also borrow by issuing debt (bonds) Sold through initial public offering (IPO) Primary Market We buy stock on secondary market
11. Stock – Different Types of Stock Common Stock Preferred Stock No voting rights Investors guaranteed fixed dividend forever In bankruptcy, preferred shareholders are paid before common Closer to debt than stock Majority of stock issued Ownership in company Claim on profits One vote per share Highest return Most risk (bankruptcy) Variable dividends Never guaranteed
12. Stocks – How Stocks Trade New York Stock Exchange Floor of NYSE Founded in 1792 Face-to-face trading floor Broker to specialist to broker GE, McDonald’s, Coke, WM
13. Stocks – How Stocks Trade The Nasdaq Nasdaq – Times Square, NY “Virtual” Over-the-counter No central location No floor brokers Trading done through computers Tech-heavy listings Market-maker Matches buyers & sellers
14. Stocks – Where does stock price come from Stock price is Tied to how much investor’s perceive the entire company to be worth right now AND How much the company is going to EARN in the future Market Capitalization (market cap) = how much the total company is valued at Stock Price * Shares Outstanding Pay attention to this and NOT stock price
15. Stocks – What causes stock prices to change? The easy answer… Supply and Demand More wanting to buy, less wanting to sell Less wanting to buy, more wanting to sell
16. Stock – What influences demand? Demand (and price) go up… ….Demand (and price) go down. Falling sales and profits Management turnover Famous investor sells Analyst downgrades Loss of major customers Market is down Industry out of favor Lawsuits Rumors No discernible reason Increasing sales and profits New products or services Famous investor buys in Analyst upgrades Other stocks in same industry Stock market is up Industry is hot Rumors No discernible reason
17. Stocks – why do prices change? Some believe that it isn’t possible to predict how prices will change Others think you can draw charts to determine moves What we do know: Stocks are volatile!
18. Stocks & Prices – 3 KEY POINTS At the basic level – supply and demand in the market determines stock price Price X Number of Shares outstanding = MARKET CAPITALIZATION Investor’s sentiments, attitudes and expectations ultimately affect stock prices
19. Stock Quotes - Reading
20. Assignment Reading Stock Quotes Complete the Excel spreadsheet posted on Moodle