1. Principles of Investment in Domestic and Global Financial Markets

2. Objectives Confront the reality of personal responsibility for retirement funding Calculate Capital Gains, Return on Invesment Calculate Dollar Cost Average Calculate Net Average Value Calculate Profit on a Short Sell C2 PO1d, C3 PO7, C5 PO6

3. It’s your money 83% of US employers only offered 401(k) plans to encourage workers to save for their retirement. As of 2005, 83% of US employers only offered 401(k) plans to encourage workers to save for their retirement. 13% more offered 401(k) like plans as well as a pension to encourage workers to save money Trillions of dollars of workers money is invested in Mutual Funds managed by professional investment managers

4. Return on Investment Investors seek to maximize their stock Return on Investment (ROI) To calculate ROI % – Current sell value minus Purchase value= – Divide Profit by Purchase value=Gross ROI % – Subtract 3% per year held for average inflation= Net ROI %

5. Example Current Sell Value= $20/share x 500 shares Purchase Value= – $15/share x 250, – $10 share x 250 Gross ROI %= Assume Shares were held 4 years Net ROI% = ?

6. Mutual Funds Defined and Explained A Mutual Fund gathers together the small investments of many people to make bulk purchases of stock at a discount. A manager is hired to maximize the fund’s profits. Mutual Funds purchase many different stocks with many different risks while seeking to maximize ROI%, a process called diversification Mutual funds grow in Net Average Value (NAV) through changes in – Component stock prices – Additions of dividends to original captial – Divided by total mutual fund shares

7. Calc Reimers Mutual NAV # shares = students present x 2+1 1/1/10 DIS=200 @ $35 GM=1000@ $5 AMZ=35@ $375 BP= 800 @40 What was the total NAV on 1/1? Per mutual share? 10/1/10 DIS=225 @ $25 GM= 1000@ $12 AMZ=50 @ $375 BP= 800@ $35 Total NAV 10/1? Per mutual share? $ ROI? % ROI?

8. Diversification and Age Young workers – Aggressive companies, Capital Gains emphasis Middle aged parents – Mix of Capital Gains, Blue Chips and Bonds Retired – Blue Chips and Bonds – $10,000 invested in the first mutual fund (1927’s Investment Fund of America) is worth $2.4 million today (dividends reinvested)

9. Dollar Cost Averaging Few investors seek to time the market peaks and valleys. Instead they Dollar Cost Average Retirement plans like 401(k)’s send in money bi-weekly to fund managers. Dollar Cost Averaging seeks to maximize ROI over time by making steady purchases in a stable, growing market

10. DCA Example XOM (ExxonMobil Oil) – Bi weekly purchases of $2000 Wk 1 price $50/share Wk 2 price $55/share Wk 3 price $60/share Wk 4 price $75/share Wk 5 price $65/share Wk 6 price $60/share Wk 7 price $67.50/ share – Total shares? Average cost per share? Wk 8 sell all shares @ $70/share – Dollar Profit/Loss? – % Profit/Loss?

11. Short Selling Explained Short selling allows an short term investor to profit from falling prices Essentially, investors borrow shares from a long term investor for a fee, then return the same amount of share at a later date The lender doesn’t care about the value but the quantity of the stock. Example ____ borrows 100 shares of APPL @ $300 from Mr. Reimers. Reimers collects $3 per share fee. _____ sells 100 shares @ $300, net revenue ______? 6 months later, _______ buys 100 shares APPL @ @250, returns shares to Mr. Reimers. Net Profit______?

12. So How Do You Know… When to Buy High Earnings Per Share compared to a similar corp. High Price/Earnings Ratio shows Investor Confidence compared to similar corp. – Between 18-40 is good P/E Unemployment decreases Home Sales increase Car Sales increase When to Sell Rule of 8% – Profit or Loss Acute Bad news for corp. – BP Oil Spill 4/19 $60.19/share 6/28 $27.02 /share Unemployment increases Home Sales Decrease Car Sales decrease

13. Beware the Business Cycle! Businesses cycleStock Market Cycle

14. B v SM cycle Business Cycle Peak Contraction/Recession Trough Expansion Actual results of individual companies/sectors in the larger economy Stock Market Cycle Market Top Bear Market Market Bottom Bull Market Anticipates results based on logical analysis of news, trends, perceptions of risk/return

15. Stock Market Game Intro

16. General Rules Competing against all Reimers classes – Assignment runs (dates) – $Investment Capital per person – Buy and sell Daily based on NYSE – Transaction fee each trade (buy & sell) – Research before buying/selling!!!!!! Each team must buy at least 1 stock, 1 bond and 1 mutual fund with budgeted allowance Short Selling Allowed

17. Grading Profits/Losses count as Project Grade Curved Grade as Follows – Top 10% Teams = A – Next 20%=B – Next 30%=C – Next 25%=D – Bottom 15%=F

18. Investopedia http://simulator.investopedia.com/ Register your email & pick username Join Game – Reimers Econ SMG – Pword= Seniors