Stock as an Investment

 Capital Appreciation- stock may become more valuable and the holder can buy low and sell high  Dividend- investor gets a share of the profits returned in cash in proportion to his or her ownership

Types of stocks  Income stock- associated with profitable companies that offer steady dividends  Growth stock- people plan to keep the stock for a long time and expect a large capital appreciation

 Preferred stock- gives the investor a fixed share of the profits before common shares

 Stockbroker- buys and sells stock for a living  Usually they work for a brokerage house that is a member of several stock exchanges  They have a “seat” on the exchange so the company can conduct transactions through that market

 For every transaction made- the investor is charged a percentage (called a commission)  Usually from 1 to 5% of each transaction or trade

 If you decide to buy one thousand shares of IBM- you will conduct a transaction on the New York Stock Exchange  You will be buying stock that has usually been issued and held by several other investors

 IBM is available to other investors  Transactions take place on a secondary market because they have previously been issued

 Markets like NYSE- can have companies offer stock for the first time- known as the initial public offering

 Investment bankers- to decide how much a company’s stock should sell for and how many shares should be offered  Initial offerings would be sold to larger investment firms on a primary market

 Once you own a piece of a company, you will want to keep a close eye on how the company is doing  Company will contact you frequently to keep you up to date

 They will send you a copy of their annual report  It will detail the profits, costs, debts, and future considerations of the company

 52 Week High- the highest price paid for the stock in the year  52 Week Low- the lowest price paid for the stock in the year  Stock- the company’s name (sometimes symbol)

 Yield- the percentage return on the investment. It is dividing the annual dividend by the current price of the stock

 Price-Earnings Ratio- the current stock price divided by the company’s earnings per share. The lower the number, the better the value

 Volume- the amount of shares that traded hands that day  High- the highest price gotten for the stock during the day  Low- the lowest price offered for the stock that day

 Last- the last price offered per share that day  Change- the net change from the previous day’s closing price

Main National Markets  New York Stock Exchange (NYSE)  Most important market in the U.S.  More traditional companies list their stock here

 American Stock Exchange (AMEX)- caters to smaller industrial companies  Merged with NASDAQ but are still two separate markets

 National Association of Securities Dealers Automated Quotation System (NASDAQ)- smaller, unproven companies that want their stock offered nationally will go to this market  Newer, high-tech firms (Intel and Microsoft)