Savings and Investing

1. Savings and Investing

2. Student Learning Objective Compare the risks, return, and liquidity of various savings and investment alternatives

3. Do you know these guys? Do you know what this is?

4. Mars Incorporated is a private company. The Hershey Company is a public company.

5. Mars Incorporated is a private company. The Hershey Company is a public company.

7. Research: What to consider • What do they sell? Do people want it or need it? • Are they making money? • Who are the competitors?

8. Investment OptionsStocks • Stock market newspaper listing

9. Newspaper Stock Listings • 52 Week High shows the highest price paid for one share of the stock during the past fifty – two weeks. • 52 Week low showsthe lowest price paid for one share of the stock during the past fifty – two weeks. • Stock (ticker) gives the name of the company, and its stock ticker symbol. • Dividends amount of money an investor is paid for each share of stock owned in a company • Dividend Yield The dividends per share of the company over the trailing one-year period as a percentage of the current stock price.

10. Price/Earnings Ratio or P/E Ratio is a stock's current price divided by the company's trailing 12-month earnings per share from continuous operations. • Vol (00s) indicated the number of shares traded on that particular day in hundreds • High The high for the day quoted in the newspapers refers to the highest price paid for a specific stock on the previous day. • Low The low for the day quoted in the newspapers refers to the lowest price paid for a specific stock on the previous day. • Close shows the closing price – the price paid in the final transaction of the day

11. Net chgstates the difference between today’s closing price and the closing price on the previous day.

12. Research: Quote Definitions

13. Research: The Stock Quote Source: http://finance.yahoo.com/q?s=HSY

14. Research: Where to look • Yahoo! Finance • http://finance.yahoo.com • Morningstar • http://www.morningstar.com/ • TheStreet.com (Investor Research) • http://www.thestreet.com/investment-research/index.html?cm_ven_int=navresearch • Bloomberg (Markets) • http://www.bloomberg.com/markets/ • Official company websites

15. Research: A closer look • Net Income • $820.47M (4/17/14) • Source: Yahoo! Finance • Earnings Per Share • 3.61 (4/17/14) • Source: Yahoo! Finance • Price to Earnings Ratio • 27.87 (4/17/14) • Source: Yahoo! Finance Ticker Symbol: HSY

16. Investment OptionsStocks • Stock markets • New York Stock Exchange (NYSE) • NASDAQ (tech stocks)

17. The Stock Markets • Stocks are bought and sold on the stock markets (sometimes called the stock exchanges). • The three major stock exchanges are the New York Stock Exchange, NASDAQ, and the American Stock Exchange (AMEX). • The New York Stock Exchange the world’s largest stock market in terms of dollar volume • NASDAQ the largest U.S. stock market in terms of number of companies listed and number of shares traded per day – all done electronically through a network of computers.

18. Investment OptionsStocks • Evaluating stocks • Blue-chip • Dow Jones • Bull market • Bear market • S&P 500 • Fortune 500

19. Blue Chip stocks safe investments in the ownership of large, respected, and well established companies • Dow Jones Industrial Average a daily average of the stock prices of thirty of the largest and richest blue chip companies in the United States, used to measure changes in stock market activity • Bull market condition that exists when investors are optimistic about the economy and the market goes up • Bear market condition that exists when investors are pessimistic about the economy and the market goes down • S&P 500 index an indicator of overall stock market performance based on the average stock prices of 500 top U.S. companies, compiled by Standard & Poor’s

20. Fortune 500 a list of the 500 U.S. companies with highest earnings, published by Fortune magazine • http://money.cnn.com/data/dow30/

21. What are stocks? Stocks are a type of security that gives stockholders a share of ownership in a company. Stocks also are called “equities.”

22. Why do people buy stocks? Investors buy stocks for various reasons. Here are some of them: • Capital appreciation, which occurs when a stock rises in price • Dividend payments, which come when the company distributes some of its earnings to stockholders • Ability to vote shares and influence the company

23. Capital gains • Stocks are bought and sold constantly throughout each trading day, and their prices change all the time. • When a stock price goes higher than what you paid to buy it, you can sell your shares at a profit. • These profits are known as capital gains. • In contrast, if you sell your stock for a lower price than you paid to buy it, you've incurred a capital loss.

24. Dividends • When publicly owned companies are profitable, they can choose to distribute some of those earnings to shareholders by paying a dividend. • You can either take the dividends in cash or reinvest them to purchase more shares in the company. • Many retired investors focus on stocks that generate regular dividend income to replace income they no longer receive from their jobs. • Stocks that pay a higher than average dividend are sometimes referred to as "income stocks."

25. Why do companies issue stock? Companies issue stock to get money for various things, which may include: • Paying off debt • Launching new products • Expanding into new markets or regions • Enlarging facilities or building new ones

26. What kinds of stocks are there? There are two main kinds of stocks, common stock and preferred stock. • Common stock entitles owners to vote at shareholder meetings and receive dividends. • If you hold common stock you're in a position to share in the company's success or feel the lack of it. The share price rises and falls all the time—sometimes by just a few cents and sometimes by several dollars—reflecting investor demand and the state of the markets. • There are no price ceilings, so it's possible for shares to double or triple or more over time—though they could also lose value.

27. Some companies also issue preferred stock, which exposes you to somewhat less risk of losing money, but also provides less potential for total return. • Holders of preferred stock, on the other hand, are usually guaranteed a dividend payment and their dividends are always paid out before dividends on common stock. • So if you're investing mostly for income—in this case, dividends—preferred stock may be attractive.

28. But, unlike common stock dividends, which may increase if the company's profit rises, preferred dividends are fixed. • In addition, the price of preferred stock doesn't move as much as common stock prices. This means that while preferred stock doesn't lose much value even during a downturn in the stock market, it doesn't increase much either, even if the price of the common stock soars. • So if you're looking for capital gains, owning preferred stock may limit your potential profit.

29. Preferred stockholders usually don’t have voting rights but they receive dividend payments before common stockholders do, and have priority over common stockholders if the company goes bankrupt and its assets are liquidated.

30. Common and preferred stocks may fall into one or more of the following categories: • Growth stocks have earnings growing at a faster rate than the market average. They rarely pay dividends and investors buy them in the hope of capital appreciation. A start-up technology company is likely to be a growth stock. • Income stocks pay dividends consistently. Investors buy them for the income they generate. An established utility company is likely to be an income stock.

31. Value stocks have a low price-to-earnings (PE) ratio, meaning they are cheaper to buy than stocks with a higher PE. • Value stocks may be growth or income stocks, and their low PE ratio may reflect the fact that they have fallen out of favor with investors for some reason. • People buy value stocks in the hope that the market has overreacted and that the stock’s price will rebound. • Blue-chip stocks are shares in large, well-known companies with a solid history of growth. They generally pay dividends.

32. Another way to categorize stocks is by the size of the company, as shown in its market capitalization. • Market cap is one measure of a company's size. More specifically, it's the dollar value of the company, calculated by multiplying the number of outstanding shares by the current market price. • There are large-cap, mid-cap, and small-cap stocks. • There are no fixed cutoff points for large-, mid-, or small-cap companies, but you may see a small-cap company valued at less than $2 billion, mid-cap companies between $2 billion and $10 billion, and large-cap companies over $10 billion

33. Shares in very small companies are sometimes called “microcap” stocks. • The very lowest priced stocks are known as “penny stocks.” • These companies may have little or no earnings. • Penny stocks do not pay dividends and are highly speculative.

34. outstanding shares by the current market price. • Market cap is one measure of a company's size. • More specifically, it's the dollar value of the company, calculated by multiplying the number of outstanding shares by the current market price.

35. What are the benefits and risks of stocks? • Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul. Investors willing to stick with stocks over long periods of time, say 15 years, generally have been rewarded with strong, positive returns. • But stock prices move down as well as up. There’s no guarantee that the company whose stock you hold will grow and do well, so you can lose money you invest in stocks.

36. If a company goes bankrupt and its assets are liquidated, common stockholders are the last in line to share in the proceeds. • The company’s bondholders will be paid first, then holders of preferred stock. • If you are a common stockholder, you get whatever is left, which may be nothing.

37. Even when companies aren’t in danger of failing, their stock price may fluctuate up or down. • Large company stocks as a group, for example, have lost money on average about one out of every three years. • If you have to sell shares on a day when the stock price is below the price you paid for the shares, you will lose money on the sale.

38. Market fluctuations can be unnerving to some investors. A stock’s price can be affected by factors inside the company, such as a faulty product, or by events the company has no control over, such as political or market events. • Stocks usually are one part of an investor’s holdings. If you are young and saving for a long-term goal such as retirement, you may want to hold more stocks than bonds. Investors nearing or in retirement may want to hold more bonds than stocks.

39. The risks of stock holdings can be offset in part by investing in a number of different stocks. • Investing in other kinds of assets that are not stocks, such as bonds, is another way to offset some of the risks of owning stocks.

40. How to buy and sell stocks You can buy and sell stocks through: • A direct stock plan • A dividend reinvestment plan • A discount or full-service broker • A stock fund

41. Direct stock plans • Some companies allow you to buy or sell their stock directly through them without using a broker. • This saves on commissions, but you may have to pay other fees to the plan, including if you transfer shares to a broker to sell them. • Some companies limit direct stock plans to employees of the company or existing shareholders. • Some require minimum amounts for purchases or account levels.

42. Direct stock plans usually will not allow you to buy or sell shares at a specific market price or at a specific time. • Instead, the company will buy or sell shares for the plan at set times — such as daily, weekly, or monthly — and at an average market price. • Depending on the plan, you may be able to automate your purchases and have the cost deducted automatically from your savings account. • https://www-us.computershare.com/Investor/3x/Plans/PlansList.asp?bhjs=1&fla=1&cc=us&lang=en

43. Dividend reinvestment plans • These plans allow you to buy more shares of a stock you already own by reinvesting dividend payments into the company. • You must sign an agreement with the company to have this done. • Check with the company or your brokerage firm to see if you will be charged for this service.

44. Discount or full-service broker • Brokers buy and sell shares for customers for a fee, known as a commission.

45. Stock funds • These are a type of mutual fund that invests primarily in stocks. • Depending on its investment objective and policies, a stock fund may concentrate on a particular type of stock, such as blue chips, large-cap value stocks, or mid-cap growth stocks. • Stock funds are offered by investment companies and can be purchased directly from them or through a broker or adviser.

46. Understanding fees • Buying and selling stocks entails fees. A direct stock plan or a dividend reinvestment plan may charge you a fee for that service. • Brokers who buy and sell stocks for you charge a commission. A discount brokerage charges lower commissions than what you would pay at a full-service brokerage. But generally you have to research and choose investments by yourself. • A full-service brokerage costs more, but the higher commissions pay for investment advice based on that firm’s research.

47. Avoiding fraud • Stocks in public companies are registered with the SEC and in most cases, public companies are required to file reports to the SEC quarterly and annually. • Annual reports include financial statements that have been audited by an independent audit firm. • Information on public companies can be found on the SEC’s EDGAR system. • http://ir.netflix.com/