Dollars and Sense UNIT 5: Investing Part 3: Stocks.

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Presentation transcript:

Dollars and Sense UNIT 5: Investing Part 3: Stocks

Review: Investments Your need for savings will increase as your goals become more expensive. Investing at a young age can lead to better security and economic independence later in life.

Investing in Stocks Why Invest in Stocks? Become part owner in a corporation! Earn a high rate of return. Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7% Over past 20 years, American Stocks have had an annual return of 13%!

Investing in Stocks Ownership of Stocks Ownership in a corporation is shown in printed form, called a stock certificate.

Investing in Stocks Market Value: the price at which a share of stock can be bought and sold for in the market. What affects price of stock? How is the business doing? Financial reports, business releases. State of Economy. (Which phase of business cycle?) Political Developments

How Do I Make $$$ In The Stock Market? 2005 = Pepsi $31.94 Buy Pepsi today at $________ Buy 100 shares. How much would those 100 shares cost you? Imagine 2 years from now…(April 2015) Imagine 2 years from now…(April 2015) Pepsi’s stock price on April 2015 is now $101.94!! You sell your 100 shares now valued at $10,194! You have essentially earned $2,873! (Amount Buy – Amount Sold)

How Do I Lose $$$ In The Stock Market? Buy Pepsi today at $ Buy 100 shares. $7,321. Imagine 2 years from now…(April 2015) Imagine 2 years from now…(April 2015) Pepsi’s stock price on April 2013 is now $31.94!! You sell your 100 shares now valued at $3,194! You have essentially lost $4,127! (Amount Buy – Amount Sold)

Where are Stocks Sold? NYSE: New York Stock Exchange AMEX: American Stock Exchange Nasdaq: National Association of Securities Dealers Automated Quotations

NYSE, AMEX, Nasdaq Buying Stock = “Trade” when the best bid meets the lowest offer to sell. Stock prices are determined by supply and demand.

Stock Exchanges Compare a Stock Exchange to Ebay… Ebay and Stock Exchanges = Auction sites Seller puts an item up for sale, and several people compete to buy the same item.

“Going Public” Go Public: the process a company takes to offer shares of stock to the public for the first time. Initial Public Offering (IPO): the first sale of a corporation’s public shares.

Why “Go Public” Businesses offer stock for many reasons, that include: Raise Capital Expand Operations/Create Jobs Fund Research and Development of Products Pay Off Debt Provide Employees with Benefits Develop Marketing Strategies Generate Additional Revenue

Selecting Stock Investments There is no secret or special formula. It requires: hard work and research. Four-Step Process for Deciding on Stocks Observe and Analyze Economic and Social Trends Determine Industries that will be affected Identify Companies in those industries Decide whether to buy, sell or hold the stock of those companies.

Identifying Important Figures in Selecting Stock Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise. When evaluating stocks, revenue growth serves as an indication of a company's health.

Which to Buy Pepsico p/e Coke p/e Who’s got a Better Investment?

Identifying Important Figures in Selecting Stock P/E Ratio: Market Value per Share/Earnings per Share it shows how much investors are willing to pay per dollar of earnings. In other words, it shows value.investors In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry

Which to Buy Pepsico p/e Coke p/e Who’s got a Better Investment?

Identifying Important Figures in Selecting Stock 52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks). High Low Current Coke Pepsi

Identifying Important Figures in Selecting Stock Earnings per Share: = Net Income – Dividends / Average Outstanding Shares EPS indicates the profitability of a company.