STOCKS PRIVATE VS PUBLIC CORPORATIONS Private Corporations

STOCKS

PRIVATE VS. PUBLIC CORPORATIONS Private Corporations – shares of stock are NOT openly traded in stock markets Public Corporations – sells shares openly where anyone can buy them to fund their business activities

COMMON STOCK VS PREFERRED STOCK Companies who issue Common Stock Form of equity and they don’t have to repay stockholders Ø Dividends are NOT mandatory Ø Required by law to hold yearly meeting where stockholders can vote on company business Ø Why do investors purchase Common Stock? Income from dividends Ø Dollar appreciation of stock value Ø Possibility of increased value from stock splits Ø

COMMON STOCK VS PREFERRED STOCK Preferred Stock – Attract more conservative investors because receive voting rights, dividends, and might get money if they company is in financial trouble may be entitled to dividends before common stock and may have the right to be paid first a certain amount of money before the common stock on a liquidation or merger of the company into another company

TYPES OF STOCK INVESTMENTS Blue-Chip Stocks – stock issued by the strongest and most respected companies: Wal-mart, AT&T, Mc. Donalds – very safe Income Stock – Income stocks' prices do not tend to fluctuate a great deal but pay dividends that are higher than average: gas and electric companies

TYPES OF STOCK INVESTMENTS Growth Stock – tendency to grow faster than the market, these companies generally reinvest all earnings into infrastructure in order to maintain rapid growth, rather than directly paying out their earnings to investors: technology stocks Cyclical Stock – intensely follow the business cycles of the economy, are always the first stocks to reflect a recession or an expansion: airline or car manufacturer company Non-cyclical Stock - These are companies that provide us with essentials, such as healthcare and food.

TYPES OF STOCK INVESTMENTS Defensive Stock – remains stable during declines in the economy: utility industry Large Cap and Small Cap Stocks – corporation that has issued a large number of shares of stock and has a large amount of capitalization. Small cap stocks are considered to be a higher investment risk. Penny Stocks – shares that trade for less than $1

SOURCES FOR EVALUATING STOCK INVESTMENTS Newspaper Internet Stock Advisory Services Corporate news

PRIMARY MARKETS FOR STOCKS Bull Market – investors are optimistic about the economy and buy stocks Bear Market – investors are pessimistic about the economy and sell stocks

FACTORS THAT INFLUENCE THE PRICE OF STOCK Current Yield – A financial ratio that shows how much a company pays out in dividends each year relative to its share price Annual Dividend Current Market Value Total Return – includes the annual dividend as well as any increase or decrease in the original purchase price of the investment Current Return + Capital Gain = Total Return

FACTORS THAT INFLUENCE THE PRICE OF STOCK Earning per share – measures the amount of corporate profit that can be assigned to each share of common stock Net Earnings_____ Outstanding Common Stock Price Earning (PE) Ratio – price of one share of stock divided by the corporation’s earnings per share of stock outstanding over the last 12 months. Market Price Per Share Earnings Per Share

PRIMARY MARKETS FOR STOCKS Primary market – investor purchases securities from a corporation through an investment bank or other representative of the corp. Initial Public Offering (IPO) – when a company sells stock to the general public for the first time

SECONDARY MARKETS FOR STOCKS Securities Exchanges – marketplace where brokers who represent investors meet to buy and sell securities New York Stock Exchange - NYSE NASDAQ AMEX (acquired by NYSE in 2008)

SECONDARY MARKETS FOR STOCKS Over-the-Counter Market – network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange Account Executives – stockbrokers who buys or sells securities for clients Brokerage Firms – trade stocks for you; fullservice, discount, and online

TRADING STOCKS Market Order – request to buy or sell a stock at the current market value Limit Order – request to buy or sell a stock at a specified price Computerized transactions – you do the research and analysis, but a full service and discount firms will allow you to trade through a software package or website Commission Charges – brokerage firms charge commission on each transaction or a percentage of the value

INVESTMENT STRATEGIES Long Term Buy and hold technique Ø Dollar cost averaging – put in a certain amount every year. Some years you buy a lot of shares and other you buy fewer shares Ø Direct investment and dividend reinvestment plans – companies sell directly to investors and they reinvest their dividends in the company to buy more shares of that stock Ø

INVESTMENT STRATEGIES Short Term Ø Investments traded less than 1 year Ø Buying stock on margin – investor borrows part of the money needed to purchase a stock through a brokerage firm

MARKET INDICES A stock market index is a method of measuring a section of the market Ø A 'world' or 'global' stock market index includes (typically large) companies without regard for where they are domiciled or traded. Ex: S&P Global 100. Ø A 'national' index represents the performance of the stock market of a given nation— The most regularly quoted market indices are national indices composed of the stocks of large companies listed on a nation's largest stock exchanges, such as the American S&P 500, Japanese Nikkei 225, and the British FTSE 100

MARKET INDICES A stock market index is a method of measuring a section of the market More specialized indices track the performance of specific sectors of the market. Ex: Wilshire US REIT which tracks more than 80 American real estate investment trusts The Dow Jones Industrial Average is an index of 30 "blue chip" stocks of U. S. "industrial" companies. The Index includes substantial industrial companies with a history of successful growth and wide investor interest.