INTRODUCTION TO EQUITIES by Matt Ingram Invest Ed® All Rights Reserved Oklahoma Securities Commission June 2017

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 Insiders SEC

Stock Introduction, cont’d. Shortcut to http://finance.yahoo.com research pg. Company’s Investor Relation s page SEC website http://www.sec.gov/ In the Search box at the top of the Yahoo! Finance page, key either the stock symbol or the name of the company, and click Search. This takes you to the research page for this company. Every topic on the menu across the top refers to this specific stock.

Trading is Not Investing Trading means making day-to-day transactions in financial instruments. There are option traders, futures traders, stock traders—it’s a legitimate enterprise. Putting SOME money into trading is OK, just not too much money. It is high risk and high volatility. (and high transaction costs)

Trading is Not Investing, cont’d. Few people make giant profits by trading. Instead of getting rich slowly by investing, some people choose to get poor quickly by trading. But some people also make money at the casino; it is not investing. What is High Frequency Trading?

Trading for a Living Remember when “day traders” were all the rage? 1999-2000? Recent research shows that trading for yourself is a losing proposition. Only 1% of day traders are predictably profitable. Yes, Wall Street hires traders, but they have the firm’s resources at their disposal. Transaction costs are a major factor.

Class Activity Each group will be assigned a publicly traded company. Research the company on Yahoo Finance. https://finance.yahoo.com/ Find the following: market cap, location, what business is it in, Investor Relations page information, and two interesting news stories.