1. Introduction to Stocks Basics of Investing I Spring 2008 Economics 98 / 198 DeCal` www.ocf.berkeley.edu/~jml/decal

2. Schedule Today  Lecture content: Basics of Investing – What is a stock? – How are they traded? – What are brokerages? – Different types of orders – What is the market? – Terminology  Learning how to use the simulation; IBD

3. Lecture Content

4. What is a stock?  Common stock  Gives you a “share” of ownership of a publicly traded company  Stock ownership – Voting rights – Claim to assets (behind debt holders) and earnings – Potentially entitled to dividends

5. What is a stock?  Ticker symbols – Set of letters that represent a security traded on an exchange – Ex. MSFT, GS, AAPL, MA, BUD, LUV  Stock quotes – List of prices for a stock at a particular point during the trading day  Stock tickers – What do those green and red numbers mean?

6. Basic Stock Quote

7. More Stock Quotes

8. Homework  Find 5 different stocks from Yahoo Finance  Find their Ticker Symbol  Price (Close)  52 Week High  52 Week Low  Yesterday’s Volume  BRING TO CLASS TOMORROW

9. Different Types of Stock  Preferred Stock – No voting rights to company issues – Issued fixed dividends forever – main form of return  Common Stock – Majority of stock we see and hear about in the news – Ownership of the company – Entitled to portion of the earnings – Earn returns mainly through capital gains  What are capital gains? – Increase in asset value relative to the purchases price – Not realized until asset is actually sold – Example.

10. Stocks vs. Bonds  Stocks are equity – Generally considered riskier – Quite possible to lose a significant portion, if not all, of your money – Potential for high returns  Bonds are debt – Lower and usually fixed return – Higher claim than stockholders  What does this mean?

11. Dividend Debate  Distribution of a portion of a company's earnings to its shareholders (usually cash)  Bad or Good? – Why?

12. What Can Cause Stock Prices to Change? EASY!  Supply and Demand! But…what affects supply / demand of a stock?

13. What Can Cause Stock Prices to Change?  Earnings & growth expectations  Positive / negative news  Economy sentiment  Investor sentiments & attitudes  Irrational exuberance / behavior – Sentiment - view of or attitude toward

14. Two Markets  Primary Market – market in which investors have first opportunity to buy newly issued shares – Initial Public Offering (IPO)  First time that company offers its shares to public markets (securities bought directly from company)  Where private companies become public  Secondary Market – investors trade already- issued shares of companies with each other – Ie. The stock market – Trading of a company’s stock DOES NOT DIRECTLY involve the company financially

15. How Stocks Are Traded  Major exchanges – Lists stocks (and other securities), sets policies for how stocks are traded  New York Stock Exchange (NYSE)  American Stock Exchange (AMEX)  National Association of Securities Dealers Automated Quotation  Only “publicly traded companies” are listed

16. Market Indices (Index)  Definition – Aggregate value of combining several stocks together and intended to represent entire or portion of the stock market  S&P 500 – 500 stocks chosen by Standard & Poor to represent US stock market  NASDAQ Composite  Dow Jones Industrial Average – 30 most significant stocks traded  S&P 600 Small-Cap  Russell 3000 – 3000 of the largest stocks in the US

17. Stocks Markets & Animals  Bull Market – When everything in the market is going great and stocks are generally heading upwards  Bear Market – When everything is NOT GOOD and stocks are generally headed  NOTE: Nothing lasts forever! Good times and bad times will end at some point  Other animal terms: pigs, chickens http://www.investopedia.com/university/stocks/stocks7.asp

18. Brokerages  Need a medium to trade through – this is where brokerages come in  Cash vs. margin account  Criteria – Full service vs. discount – Fees (commission) – Services / tools – Minimum balance

19. Opening an Account  Not a hard process- most of it just some paperwork and mail – Sign-up online and download forms – Mail checks, forms, and copy of ID – Accounts created within a couple of days  Cash accounts usually never turned down – Margin accounts difficult if you have pretty bad credit history  What you will need: a computer, starting capital, and investing know-how

20. Brokerages  Some links for brokerage comparisons – Find something that works for what YOU need – No one broker that is best for all investors  http://www.investingonline.org/gso/broker_ratings.html  http://www.consumersearch.com/www/internet/online- brokers/  http://www.stockbrokerguide.com/  http://online-stock-trading-review.toptenreviews.com/

21. Things to Internalize  Learn the basics! – Need to know what basic terms mean – Articles should help you  Advantages of starting young  Useful resources for stock tutorials – www.investorwords.com – http://www.investopedia.com/university/ – www.fool.com

22. Homework / Reading  Monitor your portfolio  Weekly Analysis  Online articles (Course website) – “The Five Biggest Stock Market Myths” – “Getting Started”

23. Homework  Type out a brief description of each stock that you purchased. (1 Paragraph) (company profile, major products/projects, geographic location of its business)  Give at least 3 reasons why you purchased the stock. (1-2 Paragraphs)  Think about:  Earnings & growth expectations  Positive / negative news  Economy sentiment  Investor sentiments & attitudes  Irrational exuberance / behavior  What do you think will happen during the next week with the stock? Do you think the stock will increase in price or decrease in price? Give reasons to justify your answers. I.E. is there big news coming out in the near future that could influence the price of the shares. (1 Paragraph)  Next Wednesday when we meet what is the price that you think your companies shares will be trading at:_______________