INTRODUCTION TO INVESTING by Matt Ingram Invest Ed® All Rights Reserved Oklahoma Securities Commission Webinar

Capital Flows from Investors to Corporations Corporations need capital; investors have capital. So, they borrow from banks or the public. Or, they can sell part of their business in return for cash. The ownership sold is known as “equity.” It could be private or publicly traded. If the shares trade on an exchange, this is called “going public.” (IPO)

Types of Investments Also known as ownership in a firm Get “shares” of stock Limited downside, unlimited upside Unlimited life, can grow forever, may even split Residual claim

Types of Investments, part 2 Debt Many varieties—could be time deposits, bonds, money market accounts Periodic interest payments and principal Limited upside and downside Limited life

Types of Investments, part 3 Mutual Funds Investment pool Can own any type of asset Extremely popular with retail investors Real Assets Real estate Gold, other commodities Collectibles

Why Do We Own Stocks? Over time, equities have outperformed all other assets classes. Capital Gains Dividends Participation with economic growth and innovation Passive ownership of business

How Do We Own Stocks? Retirement account Brokerage account 401k, 403b IRAs You really don’t know which ones you own. Brokerage account Full service Discount You can pick your stocks or get advice from a professional.

What is the Stock Market? When you hear “the market,” it’s usually the S&P 500 Index. Or it could be the Dow Jones Industrial Average. (“the Dow”) Each market around the world has an index everyone follows. Most stocks are part of an index; some are not.

What Drives Equity Prices? Emotions in the short term (greed and fear) Booms and Busts Profits in the long term (net income and free cash flows)

What is a Stock Worth? It’s really worth what the market tells you at a point in time. But that price changes all the time. Any asset should be worth the PV (present value) of all future expected cash flows. What are the CFs (cash flows) shareholders are entitled to receive? Dividends? Net Income?

Fundamental Analysis examination of a firm’s accounting statements and other financial and economic information, marketing prospects, etc. to determine if the current market price is too high or too low The basic idea is to identify “undervalued” stocks to buy and “overvalued” stocks to sell. In effect, the analyst is pitting his/her skill at evaluating the company’s status with the “wisdom” of the market. She/he may or may not be better.

Technical Analysis techniques for predicting market direction based on (1) historical price and volume behavior, and (2) investor sentiment Technical analysts essentially search for bullish (positive) and bearish (negative) signals about stock prices or market direction.

Some Stock Terminology Market capitalization Large/Mid/Small cap Ticker Long/short Shares outstanding