Marketing / DECA Stocks In Review

What are they? Stocks ownership in a corporation 1 share = 1 vote Works like a democracy 1 share = 1 vote 50% + 1 share would constitute enough voting power for a hostile takeover

Bill Gates Transaction

Why do you invest in stocks? Better Return than most savings, CD’s, or Bonds Stock market itself offers a 7-9% annual return since its inception Despite all the events that have happened it will typically climb

Basic Risk v. Return High Risk = High Return Low Risk = Low Return Potentially stocks Low Risk = Low Return Bank Accounts Nothing is guaranteed in the market

Historical Movements Bull Markets Bear Markets 1920-1929 Early 1990’s Roaring 20’s Industrial Revolution Early 1990’s Tech Boom Bear Markets October 1929-1932 (Great Depression) Stock Market Crash September 2000-2002 (Y2k, 9/11) 2008 Financial / Housing Crisis

Types of Stocks Blue Chip Stocks – Small Growth / Stable / Large Cap / traditionally safe Penny Stocks – Potential for Growth / High Risk / Small Cap Growth Stock- growing companies /expanding Cyclical Stock – run alongside the economy Restaurants, Hotels, car companies, clothing stores

Market Capitalization Types of Caps Mega = over 250 Billion Large = over 10 Billion Mid = 2-10 Billion Small = less 1 billion Micro = less than 250 million ( risky) Formula= Shares Outstanding x Current Price Microsoft Worth

Diversification Invest across Industry / Sectors multiple different areas: Stocks, Bonds, Cash (ex. Mutual Funds) Harry Markowitz – created the idea (Nobel Prize Economics)

Security Exchanges - Stock Markets NYSE – over 3,000 companies Worth: Approx. 18-20 trillion NASDAQ – mostly Tech Stocks or internet based companies AMEX- smaller stocks (penny stocks)

Other Physical Markets Regional Markets S.F / Chicago / Boston Intl Markets: Tokyo (2nd largest in the world), London, Paris, Toronto, Sydney

Benchmark Index Comparing Stocks to the Market S&P 500 Standard and Poor's (S&P) is a well-known provider of indices that measures the performance of the stock market. The S&P 500 Index comprises the largest 500 companies in the U.S. The popular S&P 500 Index, also known as "Spiders" by its ticker symbol SPY, has more than $1 trillion trades on the AMEX.

Other Benchmarks The best-known indicators: Dow Jones ( more than 100 years old) The best-known indicators: The Dow Jones Industrial Average Sub categories are also available Dow Jones Transportation Average Dow Jones Utility Average.

What makes a good Stock Basic Factors: Low price compared to 52 week Multiple Shares held by institutions Low amount held by insiders Dividend Paying Companies Companies who share their profit with investors by paying them for simply owning the stock Dividends are not required Low Amount Debt Good Free Cash Flow What are the insiders doing? Important: beware from stocks with “weird” or no financial information new startups or private gone public

What drives Prices: News Impact on Stocks New Products/ Technology Economic ex. Federal Reserve raising Interest rates Natural Disasters Favorable/ Unfavorable Quarterly Filing with SEC Law Suits

How does the market work? Auction Format: Buyers (bid) & Sellers (ask) Sample Quote Investing strategies Buy Low - Sell High Buy/Hold – Best Investing Strategy for the long term Stocks are traded with Ticker symbols Ex. SBUX- Starbucks MSFT- Microsoft

Buying & Selling Or Trades Market Order Buy at the current market price Limit order Sets to buy or sell at a particular price Strategy so you don’t have to watch the market

What is short Selling? The opposite of the basic trading A broker will lend you the stock You will sell it immediately At a specified date you will return the stock You hope to buy it back at a lower price and collect the difference The broker will earn a fee for loaning it to you Sometimes frowned upon by investors

Why invest more if you lose? Is it a Good idea? Dollar Cost Averaging Two Transactions January Buys 10 shares @ $20 February Buys 10 shares @ $10 June Current Price $15 Actual cost: 20 @ $15 = Break Even

Stock Splits Amount of Shares – 2x Price: Cuts in half .5 or 1/2 Example: (2:1) 500 shares @ $100 a share = 1000 shares $50 share

Why do Stocks Split? Price too high for investors – attract more investors Allows for growth New product developments More Research and development Most common splits 2:1 (common) Any combination they want Reverse Splits 1:5 Used to increase stock price If the stock price gets too low it becomes delisted

IPO’s IPO’s- Initial Public Offering Business Startups Private Companies Primarily used to generate more cash in the business Expansion Research and Development Exit Strategy for Founders Potentially High Risk No financial history / track record

SEC: Security Exchange Commission Government Agency who governs the market – Incorporated in 1934 by President Franklin Roosevelt Businesses are Required to file: Quarterly / Annual financial reports Dividends Insider transactions Search Red Flags Trading of corporate information Insider Trading Friends / Family/ Government officials

Miscellaneous Fun Facts Wall Street got its name from the Wall they built to keep the Native Americans out The Dow Jones Index came from the original Publishers of the Wall Street Journal Charles Dow & Edward Jones