INVESTING BASICS

A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED

A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED

A. THE STOCK MARKET STOCKS- UNIT OF OWNERSHIP IN A CORPORATION. STOCKS EXPLAINED STOCK MARKET- WHERE STOCKS ARE TRADED. EITHER THROUGH AN EXCHANGE OR OVER THE COUNTER

B. THE STOCK EXCHANGE EXCHANGE- A PHYSICAL LOCATION WHERE STOCKS ARE TRADED.

B. THE STOCK EXCHANGE EXCHANGE- A PHYSICAL LOCATION WHERE STOCKS ARE TRADED. NEW YORK STOCK EXCHANGE (NYSE) LOCATED ON WALL STREET WORLD’S LARGEST STOCK EXCHANGE NASDAQ- THE WORLD’S 1 ST ELECTRONIC STOCK EXCHANGE, FOUNDED IN 1971.

B. THE STOCK EXCHANGE EXCHANGE- A PHYSICAL LOCATION WHERE STOCKS ARE TRADED. NEW YORK STOCK EXCHANGE (NYSE) LOCATED ON WALL STREET WORLD’S LARGEST STOCK EXCHANGE NASDAQ- THE WORLD’S 1 ST ELECTRONIC STOCK MARKET, FOUNDED IN 1971 OVER THE COUNTER- WHEN STOCKS ARE TRADED BY DEALER NETWORKS, NOT ON EXCHANGE FLOORS TYPICALLY SMALLER STOCKS LESS REGULATION CHEAPER THEN TRADING ON EXCHANGES OVER THE COUNTER EXPLAINED

C. STOCK PRICE THE PRICE PER SHARE

C. STOCK PRICE THE PRICE PER SHARE AN INVESTMENT BANK DETERMINES A CORPORATIONS ORIGINAL STOCK PRICE BY EVALUATING THEIR VALUE BEFORE THE IPO.

C. STOCK PRICE THE PRICE PER SHARE AN INVESTMENT BANK DETERMINES A CORPORATIONS ORIGINAL STOCK PRICE BY EVALUATING THEIR VALUE BEFORE THE IPO. IPO (INITIAL PUBLIC OFFERING)- WHEN A COMPANY CAN START SELLING STOCKS.

C. STOCK PRICE THE PRICE PER SHARE AN INVESTMENT BANK DETERMINES A CORPORATIONS ORIGINAL STOCK PRICE BY EVALUATING THEIR VALUE BEFORE THE IPO. IPO (INITIAL PUBLIC OFFERING)- WHEN A COMPANY CAN START SELLING STOCKS. AFTER IPO, PRICE IS DETERMINED BY THE SUPPLY AND DEMAND OF THE STOCK IN THE MARKET.

D. CAPITAL GAINS SELLING PRICE – PURCHASE PRICE= YOUR CAPITAL GAIN. FOR EXAMPLE: BUY 1 STOCK OF YAHOO STOCK AT $30. SELL AT $40 CAPITAL GAIN = $10

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET.

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ.

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH EXAMPLES:

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH EXAMPLES: DOW JONES- CONSISTS OF 30 LARGE CAP US CORPORATIONS

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH NASDAQ COMPOSITE- AN INDEX OF ALL STOCKS THAT ARE SOLD ON NASDAQ

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH WILSHIRE COMPRISED OF OVER 6700 STOCKS.

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH WILSHIRE 5000 REQUIREMENTS: 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES.

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH WILSHIRE 5000 REQUIREMENTS: 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES. 2. THE STOCKS ARE ACTIVELY TRADED ON AN AMERICAN STOCK EXCHANGE.

E. STOCK INDEX AN IMAGINARY PORTFOLIO OF STOCKS FROM A PARTICULAR MARKET. FOR EXAMPLE: THE S&P 500 INDEX TRACKS THE GROWTH OF THE 500 LARGEST CAP COMPANIES TRADED ON THE NYSE OR NASDAQ. MEASURES THE CUMULATIVE GROWTH WILSHIRE 5000 REQUIREMENTS: 1. THE COMPANIES ARE HEADQUARTERED IN THE UNITED STATES. 2. THE STOCKS ARE ACTIVELY TRADED ON AN AMERICAN STOCK EXCHANGE. 3. THE STOCKS HAVE PRICING INFORMATION THAT IS WIDELY AVAILABLE TO THE PUBLIC.

F. MARKET CAP MARKET CAP- NUMBER OF OUTSTANDING SHARES X (TIMES) THE PRICE PER SHARE

F. MARKET CAP MARKET CAP- NUMBER OF OUTSTANDING SHARES X (TIMES) THE PRICE PER SHARE FOR EXAMPLE: YAHOO INC HAS 140 MILLION SOLD SHARES X $30 PER SHARE = A MARKET CAP OF $4.2 BILLION

F. MARKET CAP MARKET CAP- NUMBER OF OUTSTANDING SHARES X (TIMES) THE PRICE PER SHARE FOR EXAMPLE: YAHOO INC HAS 140 MILLION SOLD SHARES X $30 PER SHARE = A MARKET CAP OF $4.2 BILLION IN GENERAL THE LARGER THE MARKET CAP THE LARGER AND SAFER THE STOCK.

F. MARKET CAP MARKET CAP- NUMBER OF OUTSTANDING SHARES X (TIMES) THE PRICE PER SHARE FOR EXAMPLE: YAHOO INC HAS 140 MILLION SOLD SHARES X $30 PER SHARE = A MARKET CAP OF $4.2 BILLION IN GENERAL THE LARGER THE MARKET CAP THE LARGER AND SAFER THE STOCK. LARGE CAP = $10 BILLION+ MID CAP = $2-10 BILLION SMALL CAP = LESS THEN $2 BILLION MARKET CAP EXPLAINED

G. PRICE TO EARNINGS RATIO (P/E RATIO) SHARE PRICE DIVIDED BY EARNINGS PER SHARE

G. PRICE TO EARNINGS RATIO (P/E RATIO) SHARE PRICE/EARNINGS PER SHARE FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15.

G. PRICE TO EARNINGS RATIO (P/E RATIO) SHARE PRICE/EARNINGS PER SHARE FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15 THE HIGHER THE P/E RATIO THE MORE YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (BAD)

G. PRICE TO EARNINGS RATIO (P/E RATIO) SHARE PRICE/EARNINGS PER SHARE FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15 THE HIGHER THE P/E RATIO THE MORE YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (BAD) THE LOWER THE P/E RATIO THE LESS YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (GOOD)

G. PRICE TO EARNINGS RATIO (P/E RATIO) SHARE PRICE/EARNINGS PER SHARE FOR EXAMPLE: SHARE PRICE IS $30 AND EARNINGS PER SHARE IS $2 THEN YOU HAVE A P/E RATIO OF 15 THE HIGHER THE P/E RATIO THE MORE YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (BAD) THE LOWER THE P/E RATIO THE LESS YOU ARE SPENDING FOR EACH DOLLAR OF EARNINGS (GOOD) IMPORTANT TO COMPARE A BUSINESS’S P/E RATIO TO OTHER LIKE BUSINESSES. PE RATIO

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET.

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE) UTILITY STOCKS

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE) UTILITY STOCKS GREATER THEN 1 = MORE VOLATILE THEN THE MARKET. (HIGHER RISK AND HIGHER REWARD) TECHNOLOGY STOCKS PHARMACEUTICALS

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE) UTILITY STOCKS GREATER THEN 1 = MORE VOLATILE THEN THE MARKET. (HIGHER RISK AND HIGHER REWARD) TECHNOLOGY STOCKS PHARMACEUTICALS EXAMPLE: BETA OF 2 MEANS A STOCK IS LIKELY TO CHANGE 100% MORE THEN THE MARKET.

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE) UTILITY STOCKS GREATER THEN 1 = MORE VOLATILE THEN THE MARKET. (HIGHER RISK AND HIGHER REWARD) TECHNOLOGY STOCKS PHARMACEUTICALS EXAMPLE: BETA OF 2 MEANS A STOCK IS LIKELY TO CHANGE 100% MORE THEN THE MARKET. SO, IF MARKET IMPROVES BY 10%, THIS STOCK WILL INCREASE BY 20%.

H. BETA MEASURES THE TENDENCY OF A STOCK TO RESPOND TO SWINGS IN THE MARKET. BETA OF 1 = PRICE MOVES WITH MARKET BETA LESS THEN 1 = LESS VOLATILE THEN THE MARKET (SAFE) UTILITY STOCKS GREATER THEN 1 = MORE VOLATILE THEN THE MARKET. (HIGHER RISK AND HIGHER REWARD) TECHNOLOGY STOCKS PHARMACEUTICALS EXAMPLE: BETA OF 2 MEANS A STOCK IS LIKELY TO CHANGE 100% MORE THEN THE MARKET. SO, IF MARKET IMPROVES BY 10%, THIS STOCK WILL INCREASE BY 20%. IF MARKET DECREASES BY 10% THIS STOCK WILL DECREASE BY 20%. BETA DEFINED

I. MUTUAL FUNDS

AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES. (STOCKS AND BONDS).

I. MUTUAL FUNDS AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES. (STOCKS AND BONDS). A PROFESSIONALLY MANAGED PORTFOLIO

I. MUTUAL FUNDS AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES. (STOCKS AND BONDS). A PROFESSIONALLY MANAGED PORTFOLIO YOUR MONEY GROWS AT THE RATE OF THE FUNDS GROWTH

I. MUTUAL FUNDS AN INVESTMENT MADE UP OF A POOL OF FUNDS COLLECTED FROM MANY INVESTORS FOR THE PURPOSE OF INVESTING IN SECURITIES (STOCKS AND BONDS). A PROFESSIONALLY MANAGED PORTFOLIO YOUR MONEY GROWS AT THE RATE OF THE FUNDS GROWTH MUTUAL FUNDS

J. BONDS BONDS-RECEIVED WHEN INVESTOR LENDS MONEY TO A BUSINESS OR GOVERNMENT.

J. BONDS BONDS-RECEIVED WHEN INVESTOR LENDS MONEY TO A BUSINESS OR GOVERNMENT. BUSINESS OR GOVERNMENT AGREES TO PAY BACK LOAN PLUS INTEREST OVER A PERIOD OF TIME.

J. BONDS BONDS-RECEIVED WHEN INVESTOR LENDS MONEY TO A BUSINESS OR GOVERNMENT. BUSINESS OR GOVERNMENT AGREES TO PAY BACK LOAN PLUS INTEREST OVER A PERIOD OF TIME. WHEN YOU BUY BONDS YOU ARE ACTING LIKE A BANK

J. BONDS BONDS-RECEIVED WHEN INVESTOR LENDS MONEY TO A BUSINESS OR GOVERNMENT. BUSINESS OR GOVERNMENT AGREES TO PAY BACK LOAN PLUS INTEREST OVER A PERIOD OF TIME. WHEN YOU BUY BONDS YOU ARE ACTING LIKE A BANK BONDS ARE TYPICALLY LESS RISKY BONDS

K. SHORT SELLING SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT.

K. SHORT SELLING STEP1: YOU BORROW SHARES OF STOCK EXAMPLE: STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE.

K. SHORT SELLING STEP1: YOU BORROW SHARES OF STOCK STEP 2: SELL THEM AT THE CURRENT MARKET PRICE. EXAMPLE STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE. STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET.

K. SHORT SELLING SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT. STEP1: YOU BORROW SHARES OF STOCK STEP 2: SELL THEM AT THE CURRENT MARKET PRICE. STEP 3: YOUR LENDER ASKS FOR THEIR STOCKS BACK EXAMPLE: STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE. STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET. STEP 3: DAYS, WEEKS, OR MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK.

K. SHORT SELLING SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT. STEP1: YOU BORROW SHARES OF STOCK STEP 2: SELL THEM AT THE CURRENT MARKET PRICE. STEP 3: YOUR LENDER ASKS FOR THEIR STOCKS BACK STEP 4: YOU BUY THEM BACK FROM THE MARKET AT HOPEFULLY A LOWER PRICE THEN WHAT YOU SOLD THEM. EXAMPLE: STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE. STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET. STEP 3: DAYS, WEEKS, MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK. STEP 4: YOU REPURCHASE NKE SHARES FROM THE MARKET TO GIVE BACK YOU YOUR LENDER AT $90 A SHARE. (YOUR COST $9,000)

K. SHORT SELLING SUMMARIZED: BORROWED AND SOLD AT $10,000 (CASH IN HAND) REPURCHASED AT $9,000 (CASH OUT OF HAND) CASH LEFT IN HAND $1,000

K. SHORT SELLING SUMMARIZED: BORROWED AND SOLD AT $10,000 (CASH IN HAND) REPURCHASED AT $9,000 (CASH OUT OF HAND) CASH LEFT IN HAND $1,000 NOTE: THERE ARE FEES AND INTEREST PAYMENTS ASSOCIATED WITH SHORT SELLING. SHORT SELLING EXPLAINED

K. SHORT SELLING SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT. STEP1: YOU BORROW SHARES OF STOCK STEP 2: SELL THEM AT THE CURRENT MARKET PRICE. STEP 3: YOUR LENDER ASKS FOR THEIR STOCKS BACK STEP 4: YOU BUY THEM BACK FROM THE MARKET AT HOPEFULLY A LOWER PRICE THEN WHAT YOU SOLD THEM. YOU MAKE MONEY WHEN THE PRICE OF A STOCK GOES DOWN SHORT SELLING = SELLING SHORT = SELLING WHEN THE PRICE IS LOWER SHORT SELLING EXPLAINED EXAMPLE: STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE. STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET. STEP 3: DAYS, WEEKS, MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK. STEP 4: NKE STOCK HAS GONE DOWN AND YOU REPURCHASE THEM FROM THE MARKET AT $90 A SHARE. (YOUR COST $9,000) YOU PROFIT $1,000

K. SHORT SELLING SELLING OF A SECURITY WHEN YOU DO NOT ACTUALLY OWN IT. STEP1: YOU BORROW SHARES OF STOCK STEP 2: SELL THEM AT THE CURRENT MARKET PRICE. STEP 3: YOUR LENDER ASKS FOR THEIR STOCKS BACK STEP 4: YOU BUY THEM BACK FROM THE MARKET AT HOPEFULLY A LOWER PRICE THEN WHAT YOU SOLD THEM. YOU MAKE MONEY WHEN THE PRICE OF A STOCK GOES DOWN SHORT SELLING = SELLING SHORT = SELLING WHEN THE PRICE IS LOWER SHORT SELLING EXPLAINED EXAMPLE: STEP 1: BORROW 100 NKE STOCK AT $100 A SHARE. STEP 2: SELL 100 SHARES AT $100 A SHARE = $10,000 IN YOUR POCKET. STEP 3: DAYS, WEEKS, MONTHS LATER YOUR LENDER ASKS FOR THEIR 100 NKE SHARES BACK. STEP 4: NKE STOCK HAS GONE DOWN AND YOU REPURCHASE THEM FROM THE MARKET AT $90 A SHARE. (YOUR COST $9,000) YOU PROFIT $1,000