1. What are Stocks? Kiplinger’s Invest Your Way to Wealth Fundamentals of Investing

2. Kinds of Stocks Common vs. Preferred ◦ Who votes/Who gets paid first Growth ◦ Faster than average, good earnings (Wal-Mart) Blue Chip ◦ Large, little risk, decent dividend (IBM) Income ◦ High Dividends (utility companies)

3. Kinds of Stocks 2 Cyclical ◦ Tied to economy (automobiles) Defensive ◦ Insulated from business cycle (food) Speculative ◦ Unproven, emerging growth

4. Earnings Profits after taxes and dividend payments ◦ Earning per share ◦ Look for routine operations not a one time event Price to Earnings ratio (P/E) 10~15ish ◦ How much investors will pay for company’s earnings ◦ Discount vs. Premium Industry? ◦ High P/E= risk; Low P/E= less rapid growth

5. Dividend Yield Dividend/Share Price ◦ 3-4% Dividend cut can cause: ◦ Price increase OR ◦ Price decrease Automatic reinvestment

6. Book Value Assets-Liabilities ◦ Also called “shareholder’s equity” Normally stock price> book value ◦ Look for stock to be 1.3 times book value per share If not; stock could face a takeover bid ◦ OR the company shows little promise

7. Equity and Volatility EquityVolatility Net Profit/Book Value ◦ Profit after taxes Should be growing Compare to industry ~15% Measured as “beta” S&P 500 beta = 1.00 Higher the beta, the bigger the risk A few stocks have negative