Chapter 11.2 notes Why invest?

Basic Investment Considerations Risk-return relationship – the more your risk, the higher the potential return Investment objectives – retirement, vacations, college fund? Simplicity – don’t invest in something you don’t understand Consistency – invest consistently over long periods of time

diversification Putting money into different investments, different risk levels, etc.

Chapter 11.3 notes Stocks

The basics You invest in a stock at a certain price per share You make money when the price goes up Called capital gains

2 types of stock Common – gives voting rights Preferred – gives a share of profits, but no voting rights

Organized Stock Exchanges Stock is sold through exchanges Securities Exchanges – places where buyers and sellers meet to trade securities New York Stock Exchange (NYSE) – oldest and largest original exchange; in NYC; use auctioning process through face to face trading; now a lot of trades are electronic

What it looks like Outside on Wall St.Inside on the floor

Over-the-Counter Markets OTC – electronic marketplace for securities that are not traded on an organized exchange. National Association of Securities Dealers Automated Quotation (NASDAQ) most important OTC largest electronic stock market trading is done w/ a computer and telecommunications network that connects investors in over 80 countries over 4,000 stocks

Measures of Stock Performance Dow-Jones Industrial Average – most popular and widely publicized measure of stock performance. 30 stocks including B of A, Exxon, Coke, GE, Wal-mart and Disney; measured in points Standard and Poor’s 500 – measures price changes of 500 stocks

Bull vs. Bear Bull v. Bear Markets – Bull = strong w/ prices going up for a while; Bear = “mean” market, w/ prices falling sharply for several months

The Bronze Bull