1. Chapter 5: Second Half

2.  Each year, a corporation may distribute to its shareholders dividends  Dividends are part of a company’s profits  Dividends are not as popular as they once were. Dividends

3.  The value of a stock is not fixed  It fluctuates (goes up and down) with changes in supply and demand.  Many people invest in stocks believing they will be worth more then what they paid for it (standard investors)  This increased value is CAPITAL GROWTH Capital Growth

4.  People looking to make quick money, who are often reckless in their use of the Stock Market are called Speculators  They try to profit in a variety of ways including  Quick buying / Quick selling  Buying Long  Selling Short Speculators

5.  Speculators who believe the stocks are rising are called bulls  For that reason, a Bull Market is where stock prices rise and profit is easily made  Bulls hope to profit from buying long, that they will buy now and look to sell later at a higher price Buying Long

6.  Speculators who believe the stocks are falling are called bears  For that reason, a Bear Market is where stock prices fall and profit is harder to come by  Bears hope to profit from Selling Short, that they will BORROW WITH CREDIT and look to BUY THEM LATER at a lower price Selling Short

7. NOT BEARS LIKE THIS!!!

8.  Brokers act as intermediaries between buyers and sellers Brokers act as intermediaries between buyers and sellers  They earn fees and commissions for every “trade” (buying or selling of stock) they make  For every bull buying there must be a bear selling For every bull buying there must be a bear selling The Role of the Broker

9.  “Buying on Margin” is a term which refers to people buying stocks partly on credit  Margin, in this case, is the percentage that people have to put up cash combined with the credit to get these stocks  Mass practice of buying on the margin resulted in this… Margin/ Buying on the Margin

10. Stock Market Crash of 1929

11.  The two major bond rating services are from two companies…  Moody’s  Standard and Poor’s (S&P) Ratings of Bonds

12.  Aaa  Aa AA  Baa  Ba BB  Caa  Ca CC Moody’s Rating System

13.  AA+  AA- AA  BBB  BB BB  CCC  CC CC Standard and Poor’s Rating System

14.  Bonds that have a high risk that may not pay off  If they do pay out, they pay a very high interest rate  This high interest rate is to make the bonds look attractive to potential buyers  However does the risk outweigh the benefits? Junk Bonds

15.  Similar to securities exchanges…  These markets exist for selling and buying commodities (natural products which prices can rise and fall depending on the market)  Examples include: Coffee, wheat, sugar, oil, tin, gold silver, etc Specialized Markets

16. Securities and Exchange Commission SEC

18.  Created in 1934 by congress, via President Franklin Roosevelt  This was a response to vast speculation, fraud, and illegal/ immoral practices on the stock exchange  Its purpose is to protect the public against deception or fraud in selling securities

19. Caveat Emptor  Even though the SEC exists, and ultimate justice can be had…  ASK THIS GUY!!!

20. Or Her…

21. Caveat Emptor  However, even with tons of regulation and the SEC being the government watch dog of the stock market, Caveat Emptor is always the best practice.  Caveat Emptor means “Let the buyer beware…

22. Caveat Emptor  Caveat Emptor means THE BEST SECURITY AGAINST FRAUD AND SCAMS IS… YOU!

23. Insider Trading  The biggest violation that the SEC guards against is Insider Trading  Insider trading refers to individuals profiting with information about a company and then buys or sells its securities before the news is out.  This is how Martha Stewart got locked up…

24. Martha CAUGHT!!!  The SEC caught Martha Stewart selling her stock in a company before a company released information that ultimately lowered the stock price  The information came from her daughter’s boyfriend who worked for the company  Ultimately, she was convicted of perjury, or lying under oath in a court of law.

25. Financial Statements  THESE ARE REQUIRED READINGS FOR ANY INVESTOR OF ANY FINANCIAL INVESTMENT!!!  When first looking into an investment, one can look into a company’s prospectus  A prospectus describes the operations of a company that is issuing new securities. “Prospective money to be earned”prospectus

26. Financial Statements  An annual report is the next financial literature a potential investor should look into  An annual report provides financial information about a company whose securities are traded on an exchange  Comes out annually- DUH!  http://www.annualreports.com/ http://www.annualreports.com/

27.  The most important of all of these documents are the Balance Sheet and the Income Statement  A balance sheet is a “snapshot” of a firm’s finances  The balance sheet summarizes information through the following:  Assets  Liabilities  Net Worth Balance Sheet

28.  Assets are anything owned by a business that have a money value  These include: Assets

29.  Liabilities are the debts or other financial obligations of a company  The liabilities of a balance sheet includes such items as:  Unpaid Bills  Unpaid Salaries  Borrowed Money  Mortgages on the Building or Equipment Liabilities

30.  Net Worth is the difference between what a firm owns and owes…  So the formula would be????????????????????  _____________ - (Minus)____________ = NET WORTH Net Worth

31. ASSETS-LIABILITIES =NET WORTH

32.  If the balance sheet is like a photo, the Income Statement is like a movie  An income statement (also known as a profit-loss statement) summarizes financial activities of a firm over a period of time  Examples anyone? Examples anyone? Income Statement

33.  Financial Statements have 3 major limitations 1.Financial statements are a record of PAST events, not a forecast of the future. (Past success does not guarantee a successful future. ) 2.Financial statements may not reflect the changing value of money that results from inflation or deflation 3.Some of the data may be based on opinion and not fact. (Any writing in these financial documents about “good will” or “best” or “customer comes first” are opinions the company has on themselves and could be outward lies) Limitations of Financial Statements