Stock Market Basics

What are Stocks? Stock is ownership in a publicly traded company. Stock is a claim on the company’s assets and earnings. The more stock you have, the greater your claim as an owner.

Why does a company decide to sell stock? When a company decides to raise money, it can borrow the money or it can sell stock. Each choice has pros and cons. If owners want to maintain control of the company and restrict ownership, borrowing funds may be the best choice. On the other hand, selling stock will dilute the ownership, but there are no repayments to drain future cash flow.

Types of Stock Common Stock – most common form of stock. One vote per share Dividends are not guaranteed prices fluctuate a lot over time; its owner also shares in the loss or profit Preferred Stock Guaranteed dividend payments They get paid before common stock owners do Usually does not include voting The price of preferred stock stays relatively the same over the time

Invest: When someone becomes an investor in a company they essentially become part owner with the expectation of making money Volatility: Indicates how much and how quickly the value of an investment, market, or market sector changes Company: A business or association usually formed to manufacture or supply products or services for profit Corporation: A company legally separate from stockholders who own it and the managers who run it P/E Ratio: A company’s closing price divided by its latest annual earnings per share

Diversification It is difficult to predict how any given stock will perform If you diversify you take on less risk Portfolio: A collection of investments owned by one individual or organization Risk: The chance of losing all or part of the value of an investment “Don’t put all your eggs in one basket”

Ticker Symbols All securities traded on the stock exchange have a ticker symbol Microsoft (MSFT) Southwest Airlines (LUV) Ford Motor Company (F) Google (GOOG) Disney (DIS) Apple (AAPL)

Initial Public Offering (IPO) The first time a stock is sold to the public Sold in the Primary Market

Twitter IPO: $41.65 on November 8th, 2013 January 3rd, 2017: $69 (highest point) March 13th, 2017 $15.31

You never know… Apple Before the iPod: $6.56 Currently: $139.99

The Markets Primary Markets – where stocks are created Secondary Markets – investors trade previously issued stocks The Stock Market Companies are not involved in the buying and selling of their stock.

The Exchanges Where Stocks are Bought and Sold New York Stock Exchange (NYSE) American Stock Exchange (AMEX) NASDAQ

The Indices (index) A collection of stocks—representative of the stock market Dow Jones – 30 most significant stocks in the stock market S&P 500 – 500 largest companies on the US stock market NASDAQ Composite – all stocks on the NASDAQ

How Do You Make Money in the Market? Stock Price Goes Up and You Sell Buy low, sell high Dividends Not all companies pay dividends

Dividends

What Causes Stock Prices to Change? Supply and Demand Earnings and Expectations Sentiments and Attitudes Economic Indicators Follow the Leader (volume) Anything

Why Invest in Stocks? The return on investments in the market are 3-4 times the annual return of inflation, savings and treasury bonds You can make good money in the market You can lose money too……

How Should I Invest? What are your financial goals? What is your risk tolerance? Return rises with risk Do you want to actively manage your portfolio? Diversify Don’t put all your eggs in one basket!

Where do I Start? Learn the Basics Setup a brokerage account Full-service vs. discount? The Internet provides a variety of discount brokerage firms (do it yourself) Fees, commission, minimum balance Keep it simple as you learn Learn about other investment vehicles

Reading a Stock Table Ticker Symbol – the alphabetic name that identifies the stock. Price – current stock price Open – current day’s opening price Close – the last trading price from the previous day Net Change – the net change from the previous day Day’s Range – the current day’s price range 52-Week Hi and Low – the highest and lowest prices at which a stock has traded over the past year Trading Volume – the total number of shares traded for the day Market Capitalization – the market value of the company Dividend Per Share – annual dividend payment per share. Price/Earnings Ratio – the current stock price divided by earnings per share for the last four quarters Click to Yahoo Finance

Best ways to make money on the stock market? Study and Research Every publically traded company releases an annual report It provides insight on what companies does, their financial performance, and its plan for the future Do they plan on expanding? Did they report a loss and need to downsize? Where to find reports: www.nyse.com, www.nasdaq.com, or the companies website

Bulls and Bears Bull Market – the economy is great and stock prices are rising Bear Market –the economy is bad and a recession is looming

Beyond the Basics Bonds – a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Buying on Margin - borrowed money that is used to purchase securities. Selling Short - a trade in which the investor borrows a security and sells it to another investor in market. Dollar Cost Average - buying a fixed dollar amount of a particular investment on a regular schedule

Etrade, Scott trade, there are a lot Yahoo finance https://us.etrade.com/home/welcome-back https://www.youtube.com/watch?v=hashPaU7Dpk