1. Chapter 12 Buying and Selling Investments
Copyright 2007 Thomson South-Western

2. Good Afternoon Please Check your Stock Let me know how you are doing.
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3. Strategies for Stock Selection
Peter Lynch: Go with what you know (after some research) “During a lifetime of buying cars or cameras, you develop a sense of what’s good, what’s bad, what sells and what doesn’t … and … you know it before Wall Street knows it.”
Markets: Current & Future
A project must have customers today and even more tomorrow or it isn’t growing.
Phase of Development – Early or Late?
Global Markets – Can the product/service be sold overseas?
Demographics– Will a large percentage of the population want this product?

4. Strategies of Stock Selection
Economic Cycle: Is the economy expanding or slowing?
The performance of many stocks will be affected by economic cycles.
Good Times:
Most people who want to work are employed. People and businesses are spending money.
Not so good times:
More people than usual are out of work or worried about being out of work. People and businesses are not buying as much
Defensive industries:
Even in difficult times, people use toothpaste, eat food, and use electricity.
Cyclical stocks:
High-priced consumer goods like cars, appliances, new houses, raw materials like aluminum, steel, and cement
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5. Strategies for Stock Selection
Avoid Obvious Risks
Front page companies and this year’s winners
Current industry condition
Changes in technology
Specific stock situation
Selecting Stock for the Game
Very short term
Growth stocks – small companies, newer companies
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6. Stocks Share of ownership in the business Stock Certificate
Proof of ownership in a corporation
Common stocks
shares of stocks that represent ownership interest and give stockholders voters rights
Preferred stocks
share of stock that pay guaranteed dividends.
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7. Sources of Information
Magazines
Newspapers
Investor newsletters
Company reports
Internet
Staying informed can help you make better investment choices.
12-1 Researching Investments
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8. Advice From Professionals
Stockbrokers
Financial planners
Employees of banks and credit unions
NASD Web site Broker Check feature
Stockbrokers – a person who buys and sells securities on behalf of others, may also provide advice on which products to buy
Financial Planners – an advisor who helps people make investment decision to meet stated goals.
– typically licensed to sell securities that are endorsed by the company
12-1 Researching Investments
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9. Reading a Stock Table
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10. Using Research Data COMPARISON FIGURES FIGURE DESCRIPTION
Current stock price
This price is the amount investors are willing to pay for a share of ownership in the company
Number of employees
Changes can reflect growth or downsizing
Market cap
The total value of a company in the stock market
Revenue
The amount of money received from business activities
Net income or profit
Money earned after deducting expenses
Profit margin
Profit shown as a percentage
P/E ratio
Compares the selling price of a company's common stock to the annual profits per share
Current ratio
A measure of a company's ability to pay its current debts from current assets
12-1 Researching Investments
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11. Trading Securities Primary market
a market in which new issues of securities are sold to investors by the issuer.
IPO – Initial Public Offering
A company’s first sale of stock to the public
IPOs raise money for companies to use for expansion
Twitter IPO
Raise $1.8Billions by selling 70 Million Shares
Nov. 6th, 2013 IPO $26 per share
Nov 7th , 2013 closing price of $44.90
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12. Trading Securities Secondary market a market in which securities are
bought from other investors
Securities exchanges
a place where brokers buy and sell securities for their clients
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
Over-the-counter market
a network of dealers who buy and sell stocks that are not listed on an exchange.
National Association of Securities Dealers Automated Quotation (NASDAQ)
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13. Good Day Class
Please use your detective skills and provide me with some insight about what is happening with
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14. Stock Transactions Market order
a request to buy or sell at current market price
Limit order
a request to buy or sell at a set price
Stop order
a request to sell when a price reaches a certain amount
Discretionary order
an order to buy or sell that lets the broker make the best possible deal.
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15. Market Timing Selling short
selling stock that has been borrowed and must be replaced at a later date
Buying on margin
buying stock with a partial loan and repaying it when the stock is sold.
Buy and hold
a long-term plan of holding stock for several years.
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16. Direct Investing Allows you to buy stock directly from a corporation
You can reinvest dividends
There are no brokerage fees
Stock dividends and stock splits increase holdings
12-2 Buying and Selling Securities
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17. Brokerage Services Full-service brokers Discount brokers
Online brokers
Commissions and fees
Full-service stockbrokers offer advice about what to buy.
12-2 Buying and Selling Securities
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18. Ethics
Churning
Is trading securities primarily to make money from sales commissions
Is illegal under SEC rules
Is considered unethical
Problems can be reported to the SEC using an online form
12-2 Buying and Selling Securities
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19. Focus on... Full-Service or Discount Brokers
Full-service and discount brokers compete for business
Full-service brokers have higher fees but offer more services
Discount brokers have lower fees but offer fewer services
12-2 Buying and Selling Securities
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20. Independent Agencies Federal Deposit Insurance Corporation (FDIC)
National Credit Union Administration (NCUA)
Financial Industry Regulatory Authority (FINRA)
National Association of Securities Dealers (NASD)
Pension Benefit Guaranty Corporation (PBGG)
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21. Government Agencies Securities and Exchange Commission (SEC)
U.S. Department of the Treasury
Internal Revenue Service
Federal Reserve System
12-3 Regulatory Agencies
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