Stocks Cole Boyer, Channing Bass, Will Bennett & Clyde Atkins

What is a Stock?

Markets  A market is where buyers and sellers come to exchange goods (in this case stocks).  Supply and demand determine price.  United States is home to the two largest stock exchanges in terms of Trade Value (NYSE & NASDAQ).  There are over twenty major stock exchanges in the world.

Going Public  Going public means releasing ownership of your company to the general population.  IPO: Initial Public Offering – The company sells ownership for cash.  Mutually Beneficial Relationship between company and shareholders:  Short Term – company may use all the capital raised in stock sales for growth  Long Term – each shareholder has a claim to a portion of the company’s profits

Going Public (Example) Tesla Motors (TSLA) went public on June 29.

Other Reasons for an IPO  Publicity/exposure for the company  Attracting better employees and more clients/customers  The prestige of being a public company  Makes acquisitions and partial ownership deals much simpler

Stock Indices  A stock index gives a general idea of how a particular market or sector within a market is doing.  Major US Indices: Dow Jones, S&P 500  Dow Jones (DJIA): Doesn’t actually pertain to heavy industry. Comprised of 30 stocks (3M, AT&T, Coca-Cola, Intel, etc.)  S&P 500 (INX): Large-cap common stocks. 50 Stocks.

Trading Mechanisms  Market Order: Buy/Sell the stock at the current market price.  Limit Order: Set a limit at which you are willing to buy/sell. Trade is completed once the price hits the limit.  Stop (Loss) Order: Set a stop price at which you would like to buy/sell. Once the price is met, trade is entered as a market order.  Shorting: Selling someone else’s shares temporarily, buy them back later (hopefully at a lower price)

Trading Mechanisms (cont.)  Bid-Ask Spread: refers to the amount by which asking price exceeds the highest bid. As soon as bid-ask spread=0, the trade is executed.  Margin Account: After buying securities on margin (borrowed money), the leftover account of debt is called the margin account. Collateralized by securities purchased on margin.

Wall Street Trading Floor → The New York Stock Exchange (NYSE) is the world's largest stock exchange by market capitalization of its listed companies at $12.25 trillion. → Provides a means for sellers and buyers to trade shares of stocks in companies. → Open Monday - Friday from 9:30am – 4:00pm ET → Continuous auction style

Market Makers  Market makers take ownership of shares, allowing people to buy and sell those goods from them.  They also can make or lose money from price movements.  The purpose of market makers is to keep the trading floor competitive and fair for everyone  Known as Market Specialists at the New York Stock Exchange.

Day Trading  Day Trading refers to buying and selling a stock (or currencies) all within one market day.  Day Trading has become more popular, since electronic trading facilitates the process.

Stock Features  Adjusted Closing Price- accounts for all the actions that a corporation may take that will affect the price of a stock, such as stock splits, dividends, and rights offerings.  Split- corporate action in which a company’s existing shares are divided into multiple shares.  Dividend- the part of the earnings of a corporation that is distributed to the shareholders

What Makes a Stock a Good Buy?  Age-old adage: Buy low, sell high  Factors to consider:  Long-term or Short-term?  What type of analysis?  Age and associated risk?  Level of expertise/education and skill sets?

Numbers to Watch  P/E Ratio – Price/Earning Ratio  = (Market Value per Share)/(Earnings per Share)  Quantifies market’s optimism in a companies growth potential  A high P/E could indicate market expects high growth  Problems:  only useful when comparing companies within industries  Tech Sector(Apple Inc.) vs. Utilities(Duke Energy)  growth rates of firms

Numbers to Watch  Trading Volume – the number of contracts of a security/stock traded in a given timespan  A spike in volume usually has a real-world, event driven explanation

Fundamental Analysis  Investing for the Long-term  Theory relies upon the total value of a company over a given future timespan  This is known as finding a company’s intrinsic value.  This method involves a more in depth look at the inner mechanics of a firm when making a decision as to whether or not to buy

Technical Analysis  Utilizes stock price charts  Short-term!  Day-trading  Requires trading agility  Hundreds of chart patterns and indicators  Becoming more popular as access to internet and discounted trading platforms increase

Derivative Market Holdings  Derivative holdings are market holdings not valued based on the direct worth of a stock or commodity.  Options and futures are examples of derivative market holdings.

Derivatives Trading  Derivative trading in the modern market requires the use of long-term computer forecasting, along with an instantly updated system of price recognition and position holding.  The methodology of derivative trading entails trading based on predicted prices of the holding in the future. These prices are based on the value of underlying market terms.

Options  Stock options are specific market holdings valued according to the option to trade an underlying holding at a certain point in the future.  The methodology of options trading is vastly different, and involves a separate system of market making.

Technology in Market Function  The advent and increase in the role of technology in the stock market has lead to a new efficiency in market-making.  Computers are now used to trade directly, hedge automatically and instantly to reduce market risk, and most astoundingly, to function as independent market- makers themselves.