Chapter 12 Buying and Selling Investments Copyright 2007 Thomson South-Western

Good Afternoon Please Check your Stock Let me know how you are doing. Slide 2

Strategies for Stock Selection Peter Lynch: Go with what you know (after some research) “During a lifetime of buying cars or cameras, you develop a sense of what’s good, what’s bad, what sells and what doesn’t … and … you know it before Wall Street knows it.” Markets: Current & Future A project must have customers today and even more tomorrow or it isn’t growing. Phase of Development – Early or Late? Global Markets – Can the product/service be sold overseas? Demographics– Will a large percentage of the population want this product?

Strategies of Stock Selection Economic Cycle: Is the economy expanding or slowing? The performance of many stocks will be affected by economic cycles. Good Times: Most people who want to work are employed. People and businesses are spending money. Not so good times: More people than usual are out of work or worried about being out of work. People and businesses are not buying as much Defensive industries: Even in difficult times, people use toothpaste, eat food, and use electricity. Cyclical stocks: High-priced consumer goods like cars, appliances, new houses, raw materials like aluminum, steel, and cement Slide 4

Strategies for Stock Selection Avoid Obvious Risks Front page companies and this year’s winners Current industry condition Changes in technology Specific stock situation Selecting Stock for the Game Very short term Growth stocks – small companies, newer companies Slide 5

Stocks Share of ownership in the business Stock Certificate Proof of ownership in a corporation Common stocks shares of stocks that represent ownership interest and give stockholders voters rights Preferred stocks share of stock that pay guaranteed dividends. Slide 6

Sources of Information Magazines Newspapers Investor newsletters Company reports Internet Staying informed can help you make better investment choices. 12-1 Researching Investments Slide 7

Advice From Professionals Stockbrokers Financial planners Employees of banks and credit unions NASD Web site Broker Check feature Stockbrokers – a person who buys and sells securities on behalf of others, may also provide advice on which products to buy Financial Planners – an advisor who helps people make investment decision to meet stated goals. Employees @Bank – typically licensed to sell securities that are endorsed by the company 12-1 Researching Investments Slide 8

Reading a Stock Table Slide 9

Using Research Data COMPARISON FIGURES FIGURE DESCRIPTION Current stock price This price is the amount investors are willing to pay for a share of ownership in the company Number of employees Changes can reflect growth or downsizing Market cap The total value of a company in the stock market Revenue The amount of money received from business activities Net income or profit Money earned after deducting expenses Profit margin Profit shown as a percentage P/E ratio Compares the selling price of a company's common stock to the annual profits per share Current ratio A measure of a company's ability to pay its current debts from current assets 12-1 Researching Investments Slide 10

Trading Securities Primary market a market in which new issues of securities are sold to investors by the issuer. IPO – Initial Public Offering A company’s first sale of stock to the public IPOs raise money for companies to use for expansion Twitter IPO Raise $1.8Billions by selling 70 Million Shares Nov. 6th, 2013 IPO priced @ $26 per share Nov 7th , 2013 closing price of $44.90 Slide 11

Trading Securities Secondary market a market in which securities are bought from other investors Securities exchanges a place where brokers buy and sell securities for their clients New York Stock Exchange (NYSE) American Stock Exchange (AMEX) Over-the-counter market a network of dealers who buy and sell stocks that are not listed on an exchange. National Association of Securities Dealers Automated Quotation (NASDAQ) Slide 12

Good Day Class Please use your detective skills and provide me with some insight about what is happening with Slide 13

Stock Transactions Market order a request to buy or sell at current market price Limit order a request to buy or sell at a set price Stop order a request to sell when a price reaches a certain amount Discretionary order an order to buy or sell that lets the broker make the best possible deal. Slide 14

Market Timing Selling short selling stock that has been borrowed and must be replaced at a later date Buying on margin buying stock with a partial loan and repaying it when the stock is sold. Buy and hold a long-term plan of holding stock for several years. Slide 15

Direct Investing Allows you to buy stock directly from a corporation You can reinvest dividends There are no brokerage fees Stock dividends and stock splits increase holdings 12-2 Buying and Selling Securities Slide 16

Brokerage Services Full-service brokers Discount brokers Online brokers Commissions and fees Full-service stockbrokers offer advice about what to buy. 12-2 Buying and Selling Securities Slide 17

Ethics Churning Is trading securities primarily to make money from sales commissions Is illegal under SEC rules Is considered unethical Problems can be reported to the SEC using an online form 12-2 Buying and Selling Securities Slide 18

Focus on... Full-Service or Discount Brokers Full-service and discount brokers compete for business Full-service brokers have higher fees but offer more services Discount brokers have lower fees but offer fewer services 12-2 Buying and Selling Securities Slide 19

Independent Agencies Federal Deposit Insurance Corporation (FDIC) National Credit Union Administration (NCUA) Financial Industry Regulatory Authority (FINRA) National Association of Securities Dealers (NASD) Pension Benefit Guaranty Corporation (PBGG) Slide 20

Government Agencies Securities and Exchange Commission (SEC) U.S. Department of the Treasury Internal Revenue Service Federal Reserve System 12-3 Regulatory Agencies Slide 21