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An Introduction to U.S. Financial Markets and Investing

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1 An Introduction to U.S. Financial Markets and Investing
Business English Short-Term Summer 2012 David Fein Intro to Markets – Fein

2 Outline Market Definitions: Stocks, Bonds, Commodities, Futures, Options U.S. Financial Exchanges Stock Evaluating stocks Mutual Funds and ETF’s Short Selling Bonds Definition Comparisons with stock The bond market Treasuries Corporate bonds Municipal bonds Sovereign debt Intro to Markets - Fein

3 Outline continued European Debt Crisis Market News
Investing Principles Intro to Markets - Fein

4 Market Definitions Stock: A piece of a company’s value that can be bought and sold Bond: A promise to pay back borrowed money at a specific date, with interest Intro to Markets - Fein

5 Market Definitions Commodities: Raw materials that can be bought and sold Oil Gold Silver Coffee Paper Intro to Markets - Fein

6 Market Definitions Futures: A contract which obligates the buyer to purchase an asset at a specific price at a specific future date, with unlimited risk Examples of assets: Commodities Currency Bonds Intro to Markets - Fein

7 Market Definitions Options: The right or option to buy (call option) or sell (put option) an asset at a particular price (strike price) by a specified date; risk for the option buyer is limited to the price of the option Example: Pay $3,000 for the right to buy a house within 3 months for $200,000. Intro to Markets - Fein

8 U.S. Financial Exchanges
New York Stock Exchange NASDAQ Chicago Board of Trade Chicago Board Options Exchange New York Mercantile Exchange Types Stock: NYSE, NASDAQ Options: CBOE, CBOT Commodities: NYMEX (physical), CBOT Futures: CBOE, CBOT, NYMEX Options: pay commission for right to buy or sell a security or asset at a specified price within a specified time (call=buy, put=sell) -e.g. Pay $3,000 for the right to buy a house within 3 months for $200,000. Futures: obligation to buy a specific security or asset at a specific price at a specific time in the future Options and Futures are examples of derivatives (5x the size of stock and bond markets combined) Commodities: basic goods used in commerce (oil, cotton, bananas, currency, etc.) - often traded as futures CBOT: world’s oldest futures and options market NYMEX: world’s largest physical commodity futures market CBOE: world’s largest options market Intro to Markets - Fein

9 NYSE: New York Stock Exchange
Intro to Markets - Fein

10 NASDAQ Intro to Markets - Fein

11 NYMEX NY Mercantile Exchange
Intro to Markets - Fein

12 CBOE Chicago Board Options Exchange
Intro to Markets - Fein

13 CBOT Chicago Board of Trade
Intro to Markets - Fein

14 Stock Purpose of stock for public companies Symbols: F, KO, JPM, GOOG
Shares vs. Stocks Brokers and brokerages Types Market cap: large, mid, small Sectors or industries (consumer staples, finance...) Role of Board of Directors Intro to Markets - Fein

15 Evaluating Stock finance.yahoo.com
Stock price vs. value P/E: Price/Earnings ratio EPS: Earnings per share Dividend Financial statements: Balance sheet Income Statement Analyst ratings Company news Sector and market news Macro-economic situation Log on to finance.yahoo.com for examples Intro to Markets - Fein

16 Mutual Funds and ETF’s finance.yahoo.com or www.marketwatch.com
Mutual Funds (Funds and stocks are “securities”) Definition Advantage Exchange Traded Funds (ETF’s) Types index (VFINX – S&P) sector (VGHCX – health care, VDC – consumer staples) market cap – small, mid, large Value /growth Domestic / international Yield / Return ETFs track indices, traded like stocks but diversified. VFINX = SP500, VGHCX= Healthcare, VDC = consumer staples ETF Intro to Markets - Fein

17 Trading Concepts Controlling the transaction price
Stop orders: trade execution only at a specific price Limit orders: maximum or minimum purchase / sale price Buying stock on margin: borrowing from broker Evaluating the market Market indexes (Dow, S&P, NASDAQ, etc.) Momentum Volume Sentiment (bullish, bearish) Technical analysis (charting) Quotes and Commissions Hours and After-Hours Short Selling (borrowing securities as a bet on a loss) Stop eg.: buy stock at $20, current price is $25. Limit eg.: sell for $25 or more Short selling: selling assets, usually securities, that have been borrowed from a third party with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the value of the assets, when he will pay less to repurchase the assets than he received on selling them. Intro to Markets - Fein

18 Short Selling From Wikipedia Intro to Markets - Fein
Schematic representation of short selling in two steps. The short seller borrows shares and immediately sells them. He then waits, hoping for the stock price to decrease, when he can profit by purchasing the shares to return to the lender. From Wikipedia Intro to Markets - Fein

19 Bonds Bonds Definition Comparisons with stock The bond market
Treasuries Corporate bonds Municipal bonds Sovereign debt (non-U.S.) Intro to Markets - Fein

20 European Debt Crisis Reasons for crisis
World economic slowdown resulting in less tax revenue Country-specific problems Ineffective tax enforcement (Greece) Real Estate market crash > weak banks (Spain) High debt (Italy at 120% of GDP, Greece at 160%) Uncompetitive industry (Portugal) Intro to Markets - Fein

21 European Debt Crisis Results of crisis
Rating agencies reducing credit ratings Rise in interest rates in weak countries Fall in stock and other markets Unemployment and social unrest Conflicts between north (Germany) and south (Spain, Italy, Greece) over solutions Bailouts (e.g. of Spanish banks) World economic slowdown Intro to Markets - Fein

22 Market News General state of economy, interest rates
Domestic Foreign Current market trends Stocks Bonds and interest rates Factors moving the markets Europe U.S. China Intro to Markets - Fein

23 Market News Libor scandal U.S. Fiscal Cliff
What is Libor? “ London Interbank Offered Rate” Why is Libor important? What happened at Barclay’s? What are the likely consequences? U.S. Fiscal Cliff What it is Possible consequences for markets Intro to Markets - Fein

24 Personal Investing Principles
Portfolios Diversification Asset classes Stocks Bonds Cash Real Estate Deciding on your asset allocation Time horizon Risk profile Portfolio size Discount vs. Full-Service Broker Fees Intro to Markets - Fein

25 Stock Market Games Virtual Stock Exchange Games
Part of marketwatch.com Requires registration Many games to choose from Competitive aspect is fun! Free! Intro to Markets - Fein

26 Selected References Yahoo Finance: http://finance.yahoo.com/
InvestorWords: Intro to Markets - Fein

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