Strategies For Stock Selection

Buy what you know What product do you, family or friends like? If it is popular, will it be so in the future Research

Markets: Current & Future Does everyone have the product now? (The stock of a rapidly growing company is more likely to increase in price.)

Markets: Current & Future cont. a. Global market possibilities ex. McDonalds’s (Will these countries want these products/services?)

Markets: Current & Future cont. a. Demographics(population) (Who will buy it & the number of potential customers)

Economic Cycle Recessions: buy stocks in defensive industries ( medicines, food, clothing, public utilities) Defensive stocks generally decline less

Economic Cycle Expansions: buy cyclical such as high-prices goods like cars & appliances; raw materials like aluminum, steel, and cement, and tools & equipment Offer higher returns & growth

Avoid the obvious If stocks on the front page then all knows about them Stick with the boring stocks

Current industry condition Will current events affect a specific industry (a group of companies of same product or service)

Changes in technology Ex. IBM vs. personal computer

Special stock situation If a company is in trouble maybe their stocks have issues.

Peter Lynch’s Activity 1 What is Peter Lynch’s advice for picking stocks? Buy what you know. Stock tips are all around us. 2. Give an example of a stock that you think has a growing market.

What is an example of a good stock to buy in a recession? Buy a stock in a defensive industry (Ex. Medicine, food, clothing, public utilities) To buy in an expansion? Cyclical stocks (these stocks move with the business cycle. Ex. Cars, housing, raw materials- steel & aluminum, industrial equipment comp.)

Why should you beware of front-page stories? If the stock is news, then everyone else knows about it.

Explain how changes in technology affect stock prices. Changes in technology could make the product obsolete, thus depressing the stock’s price, or changes could increase demand for the product, thus increasing the stock’s price.

Activity 2: Widget Manufacturing Company Strategy: Avoid obvious risk—specific stock situation Reasoning: Although the technology factor is important, the risk of losing the lawsuit is probably more important.

WonderWalkers Strategy: Buy what you know: markets Reasoning: Recognize a good product before everyone else; early phase of development means markets could expand and sales could grow rapidly.

GM Strategy: Economic Cycle—Good times and Cyclical stocks Reasoning: During periods of expansion, automobile stocks, which are cyclical, are more likely to show greater growth than defensive stocks. People are more confident about the present & future so they are more willing to make a large expenditure.

Kellogg’s, Wisconsin Valley Electric Company, GM Strategy: Economic Cycle—Not so good times and Defensive stocks Reasoning: During periods of recession, Kellogg’s and Wisconsin Valley Electric Co., both defensive stocks, generally decline less than other stocks. However, GM, a cyclical stock, be likely to decline more than other industries.

Where may stocks be traded in the SMG? NYSE and NASDAQ TRUE-FALSE: Over-the-Counter stocks may be traded only once during the SMG. FALSE- never can be traded

The broker’s fee for all trading is _____%. 1%