Chapter 12 - Investing in Stocks

Types of Stocks Common –A–A–A–A class of stock in which the owner of the stock shares directly in the success or failure of a business –D–D–D–Dividends – the part of the profits of a corporation that each shareholder receives Preferred –D–D–D–Dividends are fixed, paid first, no voting rights

Classifications of Stocks IncomeIncome or Growth - Stocks that have consistent histories of paying high dividends GrowthGrowth – shares of stock in companies that reinvest their profits into the business so that it can grow and expand.

Classifications of Stocks PennyPenny or Blue Chip – a stock that sells for less than $5 a share (highly speculative) BlueBlue Chip – stocks of large, well- established, and usually profitable businesses (Coke, Walmart) Aa a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a a

Classifications of Stocks Defensive or Cyclical Defensive – stocks that remain stable and pays dividends during an economic decline (utilities, drugs, food) Cyclical – stocks that do well when the economy is stable or growing (airlines, travel industries)...

Where Stocks are Traded and Why StockStock market exchange (auction market) – NYSE BullBull market – rising stock prices and a general feeling of optimism BearBear market – investors are pessimistic about the overall economy and start to sell stocks

Stock Investing Strategies can be:Strategies can be: 1.Conservative – take limited risks, concentrate on liquidity 2.Aggressive – take risks, concentrate on growth stocks 3.Speculative – high probability of a loss but also a chance for large gains

Risk Trade Offs 1.Low risk investments guarantee you will get your money back, plus interest 2.High risk investments have no guarantees. They can bring large profits as well as large losses 3.No-risk investments do not exist. Regardless of your choice, something can always go wrong with your investment or in your personal life, requiring liquidation for needed cash