1. Stocks & the Stock Market
Personal Finance

2. What is a stock? A stock is . . .
. . . a share of ownership in a company

3. Common Stock vs. Preferred Stock
-Common stockholders can vote on company decisions; such as the board of directors
-Generally Common stockholders get one vote per share
-Common stockholders get dividend money LAST, should the company go bust common stockholders only get money if there is any left
-Common stocks have greater potential to make money, but are associated with more risk

4. Common Stock vs. Preferred Stock
-Preferred stockholders do not have the same voting rights as common stockholders. But . . .
-Preferred stockholders are guaranteed a fixed share of the dividend forever
-Preferred stockholders get their money before common stockholders
-Preferred stocks are associated with less risk and reward

5. Why do companies sell stocks?
Because every company must raise money to operate!
There are 2 ways in which they can do this . . .
Equity Financing
(raise)
Debt Financing
(borrow)
vs.

6. Equity Financing Equity Financing = Stocks Benefits;
-Doesn’t require company to pay back money
-Doesn’t require company to make interest payments
*** HOPE that shares will one day be worth more than the purchase price

7. Debt Financing Debt Financing = Loans or Bonds Drawbacks;
-Debt financing requires companies to accrue debt
-Debt is associated with interest
-Debt detracts from earnings

8. How do stocks become available to the public?
Stocks are traded on exchanges or markets Think supermarket
Just like a supermarket where you go to buy all of the foodstuffs you need, the stock market or exchange provides stockholder with all the stocks they could need or want.

9. NYSE ~ New York Stock Exchange -AKA ”Big Board”
-Big Companies are found there . . .
-Coca Cola, Gillette, WalMart etc.
-Trade floor; brokers etc.
*Prices are determined by the current highest amount any buyer is willing to pay and the lowest at which someone is willing to sell Sounds like?

10. NASDAQ -Over the counter stocks -There is no actual central location
-Trade is done via computers
-Has several big companies
-Microsoft, Cisco, Dell etc.

11. American Stock Exchange =AMEX
Generally smaller companies
London Stock Exchange

12. Determining Stock Prices
-Stock prices change with. . .
-supply and demand
-what investors feel a stock is worth
-consideration expected growth
-Value of a Company = Market Capitalization;
-the total amount of money of all outstanding shares at the current market price

13. So what determines stock price?
*On a fundamental level; supply and demand
*Market Capitalization; value of company
-the share price is meaningless in comparison
*Earnings of a company
*Investors’ sentiments, values, attitudes and expectations
****No one completely knows or can absolutely predict trends of a stock or the stock market as a whole