STOCK MARKET KEYTERMS ECONOMICS 12

WHAT IS A STOCK? A stock represents partial ownership of a corporation. When you buy shares of a stock, you effectively own a small fraction of that company. Stocks of public companies are traded on stock exchanges like the NYSE or the NASDAQ. Type of security that represents ownership in a specific corporation and represents a claim or portion of the corporation's earnings and potential assets Owning a stock entitles you to share in the future profits of the company. The value of a company is essentially the value of its future cash flows. So the value of a stock is the value of a fraction of the future cash flows of the company.

WHY DO COMPANIES ISSUE STOCKS? The reasons that a company might want to raise money by issuing stock are: To develop new products To buy more advanced equipment To pay for new buildings and inventories To hire more employees To provide for a merger or acquisition To decrease debt To give company owners greater flexibility To place a value on the company These things can help the company make more money/profit and therefore, the stockholders will have a higher payout!

WHAT IS A DIVIDEND? Some companies pay out part of their profits through dividends. You can also benefit from a price increase of the company stock. Buying stocks is a risky investment, as neither dividends nor price increases are 100% certain and the stock can even lose part or all of its value.

WHAT IS A DIVIDEND? Dividends are like a small reward that represents a claim or portion of the company’s earnings or potential assets. The company pays you for owning shares of its stock (typically happens each year.) In general, a company that has a slow growth rate pays high dividends. On the other hand, a company with a high growth rate usually pays no dividends at all. Historically, large corporations and utility stocks have paid regular dividends. Companies with a growth rate of less than 10%, for instance, might have a high cash flow but a slowly appreciating stock. They choose to pay dividends to investors in order to attract income because stocks that pay dividends are very appealing to certain investors. Why?

WHAT IS A DIVIDEND? Common Stock Common stockholders practice their control by electing their own board of directors and are an acting voter in corporate policy. Typically at the bottom of the barrel. Preferred Stock A stock that is a class of ownership in a corporation that has a higher claim on the corporation's assets and earnings than common stock. Some large corporations with high growth rates and stock prices that appreciate rapidly probably do not pay dividends. The reason is that these companies reinvest their earnings into the company to grow their businesses

SHAREHOLDER RIGHTS A shareholder rights plan states the rights of shareholders for a company. The management of the company usually proposes the plans, and the shareholders approve them. Shareholders obtain rights when they purchase shares and transfer the rights when the shares are sold. A change of a shareholder rights plan is usually printed in the annual proxy statement and announced publicly. For example, IBM's board adopted a shareholder rights plan under which the company will issue a dividend of one right for each common share held by holders. If you buy a share or shares of stock in a public company, you become a part owner of that company. As a shareholder of one share of Microsoft, you enjoy the same basic privileges and rights as Bill Gates, who owns millions of shares. Most companies use a one-vote-one-share system. Even though your one share of Microsoft does not count much against Mr. Gates' millions of votes, the company takes each vote seriously.

TRADING Trading Trading is a more active, short-term strategy. Buying and selling frequently to take profits rather than accumulate long term growth. Some sorts of traders are: Day Traders They look to buy a stock at the low point of the day (or sell at the high) and close that position for a profit the same day. They aim to have no open positions overnight. Scalpers Make dozens of trades every day and try to make a very small profit on each. They will also close the position quickly if it goes the wrong way, to limit losses. Momentum Traders Look for a situation where there is high volume in a stock that is moving decisively one way or the other and trade in line with that trend. They will watch for that momentum to ease and then take profits. Fundamental, or swing Traders Look at a company's fundamentals and will hold positions longer than the traders above, but are still looking for short to medium term profits and buy and sell actively in the market.

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