* * With a net worth of $50 billion, Buffett is one of the richest persons in the world in. Got his big break when he gained control of Berkshire Hathaway.Berkshire Hathaway He invests in undervalued companies with strong management. Want to buy a share of B-H stock? (BRK.A)Want to buy a share of B-H stock? WARREN BUFFETT Berkshire Hathaway

* * Securities markets are financial marketplaces for stocks and bonds and serve two primary functions: 1. Assist businesses in finding long-term funding to finance capital needs. 2. Provide private investors a place to buy and sell securities such as stocks and bonds. The BASICS of SECURITIES MARKETS

* * Stock Exchange -- An organization whose members can buy and sell securities on behalf of companies and individual investors. Over-the-Counter (OTC) Market -- Provides companies and investors with a means to trade stocks not listed on the national securities exchanges. NASDAQ -- A telecommunications network –based stock exchange that links dealers across the nation so they can exchange securities. STOCK EXCHANGES

* * NYSE – the largest NASDAQ London Stock Exchange Tokyo Stock Exchange Deutsche Borse TOP STOCK EXCHANGES

* * Securities and Exchange Commission (SEC) - - The federal agency responsible for regulating the various stock exchanges; created in 1934 through the Securities and Exchange Act. Prospectus -- A detailed registration statement that includes extensive economic and financial information that must be sent to prospective investors. The SECURITIES and EXCHANGE COMMISSION

* * Stocks -- Shares of ownership in a company. Stock Certificate -- Evidence of stock ownership. Dividends -- Part of a firm’s profits that the firm may distribute to stockholders as either cash or additional shares. LEARNING the LANGUAGE of STOCKS

* * Stockholders are owners of a firm and never have to be repaid their investment. There’s no legal obligation to pay dividends. Issuing stock can improve a firm’s balance sheet since stock creates no debt. ADVANTAGES of ISSUING STOCKS

* * Stockholders have the right to vote for a company’s board of directors. Issuing new shares of stock can alter the control of the firm. Dividends are paid from after-tax profits and are not tax deductible. The need to keep stockholders happy can affect management’s decisions. DISADVANTAGES of ISSUING STOCK

* * Common Stock -- The most basic form; holders have the right to vote for the board of directors and share in the profits if dividends are approved. Preferred Stock -- Owners are given preference in the payment of company dividends before common stock dividends are distributed. However, preferred stockholders do not have voting rights. TWO CLASSES of STOCK

* * Bond -- A corporate certificate indicating that an investor has lent money to a firm. LEARNING the LANGUAGE of BONDS The principal is the face value of the bond. Interest -- The payment the bond issuer makes to the bondholders to compensate them for the use of their money.

* * Bondholders are creditors, not owners of the firm and can’t vote on corporate matters. Bond interest is tax deductible. Bonds are a temporary source of funding and are eventually repaid. Bonds can be repaid before the maturity date if they contain a call provision. ADVANTAGES of ISSUING BONDS

* * Bonds increase debt and can affect the market’s perception of the firm. Paying interest on bonds is a legal obligation. If interest isn’t paid, bondholders can take legal action. The face value of the bond must be repaid on the maturity date. DISADVANTAGES of ISSUING BONDS

* * BOND RATINGS Rating Moody’sStandard & Poor’sDescription AaaAAAHighest Quality AaAAHigh Quality AAUpper-Medium Grade BaaBBBMedium Grade BaBBLower-Medium Grade BBSpeculative CaaCCC, CCPoor CaCHighly Speculative CDLowest Grade

* * Corporations can issue two classes of bonds: 1. Unsecured bonds (debenture bonds): not backed by specific collateral. DIFFERENT CLASSES of CORPORATE BONDS 2. Secured bonds: backed by collateral (land or equipment).

* * Stockbroker -- A registered representative who works as a market intermediary to buy and sell securities for clients. Online trading services, such as TD Ameritrade, E*Trade, and Scottrade, offer securities trading services online to buy and sell stocks and bonds. BUYING SECURITIES

* * PRIMARY INVESTMENT SERVICES CONSUMERS NEED Savings and investing advice Help with 401k plans Retirement planning Tax planning Estate planning Education expense planning Source: Investment Company Institute.

* * 1. Investment risk 2. Yield 3. Duration 4. Liquidity 5. Tax consequences FIVE INVESTMENT CRITERIA

* * AVERAGE ANNUAL RETURN of ASSET CLASSES ( ) InvestmentReturn Small company stocks12.2% Large company stocks9.5% Corporate bonds6.0% Long-term government bonds5.8% Treasury bills4.1% Source: Ibbotson Associates and Morningstar. The greater the risk = the greater the return.

* * Bulls: Investors who believe stock prices are going to rise. PERCEPTIONS of the MARKET Bears: Investors who expect stock prices to decline.

* * BEAR MARKET DECLINES in the S&P 500 Time Period% Drop in Prices % % % % % Source: Stock Traders Almanac 2009.

* * Capital Gains -- The positive difference between the price at which you bought a stock and what you sell it for. Investors can also choose stocks according to their strategy:  Blue-chip stocks  Growth stocks  Income stocks  Penny stocks SELECTING STOCKS

* * UNDERSTANDING STOCK QUOTATIONS

* * TOP FINANICIAL NEWS and RESEARCH SITES Yahoo Finance AOL Money and FinanceAOL Money and Finance MSN Money Forbes Dow Jones & Co. Source: Entrepreneur Magazine, March 2009.

* * First-time bond investors generally ask two questions:  Do you have to hold a bond until the maturity date?  How can I assess the investment risk of a particular bond issue? Junk Bonds -- Bonds that have a high risk and high default rates. IMPORTANT BOND QUESTIONS

* * Mutual Fund -- An organization the buys stocks and bonds and then sells shares in those securities to the public. The fund pools investors’ money and buys stocks according to the fund’s purpose. Exchange-Traded Fund (ETF) -- Collections of stocks and bonds that are traded on securities exchanges but themselves are traded more like stocks than mutual funds. INVESTING in MUTUAL FUNDS and EXCHANGE-TRADED FUNDS

* * PERCENTAGE of HOUSEHOLDS OWNING MUTUAL FUNDS Source: Investment Company Institute. Year% of Households 19805% % % % %

* * THREE VARIETIES of ETFs Source: Schwab and E*Trade. ETFDescription Traditional Most common; include large U.S. stocks, small U.S. stocks, international stocks, or investment-grade bonds. Niche Focus on an individual sector like healthcare, high-yield bonds, or a single country. Exotic Invest in unusual, more volatile sectors such as commodities like gold and concepts like clean technology.

* * UNDERSTANDING MUTUAL FUND QUOTATIONS

* * GROWTH of SOCIALLY RESPONSIBLE INVESTING Source: Charles Schwab on Investing. YearNumber of SRIsTotal Net Assets $10 Billion $90 Billion $170 Billion $210 Billion $260 Billion

* * COMPARING INVESTMENTS

* * Dow Jones Industrial Average -- The average cost of 30 selected industrial stocks. S&P 500 tracks the performance of 400 industrial, 40 financial, 40 public utility, and 20 transportation stocks. KEY STOCK MARKET INDICATORS

* * The market collapsed into a deep decline in with the dot-com bubble burst.  Investors lost $7 trillion in market value. In , the collapse of the real estate market sent financial markets into panic.  The U.S. government made significant investments in private banks and offered a large stimulus package to re- energize the economy. TURMOIL in the 2000s

* * Wall Street - Issued exotic securities; paid excessive compensation based on bonuses; and investment banks got the SEC to relax capital requirement. Main Street - Americans lived beyond their means; lenders gave favorable loans to homebuilders; greedy homeowners took out equity loans; and teaser mortgage rates let people live large. Washington - Gramm-Leach-Billey Act allowed commercial and investment banks to partner; housing interest rates were kept low; and Community Reinvestment Act forced lending to people with bad credit. WHO’S at FAULT for the ECONOMIC CRISIS? Source: Fortune Magazine,