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Investing in Equities and Options
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Stocks and Efficient Markets
Equities, or shares of common stock, represent ownership of corporations People can purchase stock through a stockbroker, brokerage firm, or indirectly through mutual funds and 401k plans
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Stocks and Efficient Markets
Efficient Market Hypothesis – the idea that stocks are usually priced correctly and that bargains are hard to find because stocks are closely followed by investors Portfolio Diversification – the practice of holding a large number of different stocks so that increases in some offset the decreases in the others
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Stocks and Efficient Markets
Mutual Funds – a company that sells stock in itself to investors When a mutual fund invests money it receives and makes a profit, investors can sell their shares for a profit The market value of a mutual fund is called the Net Asset Value (NAV)
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Stocks and Efficient Markets
401k Plans A tax deferred investment and savings plan Acts as a personal pension fund for employees Deducted directly from payroll Some employers will match contributions up to a certain dollar amount
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Stock Markets and Their Performance
Stock Exchanges A place where buyers and sellers of stocks meet to trade stocks Can be a physical place. NYSE and AMEX Or a digital exchange. NASDAQ Over-the-counter market – Stocks that are not listed on any stock exchange can be traded though electronic markets
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Stock Markets and Their Performance
Measuring Performance Dow Jones Industrial Average A collection of 30 Stocks used as a sample of the health of the industrial market Standard and Poor’s 500 (S&P 500) A collection of 500 of the largest most important stocks to measure the market as a whole
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Trading in the Future Most buying and selling is spot market trading, or the current price of stocks Options – Ability to buy or sell at a specific price Call option – Ability to buy stock in the future at a specific price Put option – Ability to sell a stock in the future at a specific price
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