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Berkeley ECON 98 - Basics of Investing I

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Introduction to StocksSchedule TodayAdministrative IssuesSlide 4What is a stock?Slide 6Basic Stock QuoteMore Stock QuotesDifferent Types of StockStocks vs. BondsDividend DebateWhat Can Cause Stock Prices to Change?Slide 13Two MarketsHow Stocks Are TradedMarket Indices (Index)Stocks Markets & AnimalsBrokeragesOpening an AccountSlide 20Different types of OrdersDifferent Types of OrdersThings to InternalizeCurrent EventsInvestopedia SimulationHomework / ReadingIntroduction to StocksBasics of Investing ISpring 2008Economics 98 / 198 DeCal`www.ocf.berkeley.edu/~jml/decalSchedule TodayAdministrative Issues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Current EventsAssignments / ReadingsAdministrative IssuesAttendance & Sign-InName TagsEnrollmentEmailsWebpageSyllabus ReviewNews Presentation Sign UpsInvestor’s Business Daily AccessLecture ContentWhat 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 dividendsWhat 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?Basic Stock QuoteMore Stock QuotesDifferent 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.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?Dividend DebateDistribution of a portion of a company's earnings to its shareholders (usually cash)Bad or Good?–Why?What Can Cause Stock Prices to Change?EASY!  Supply and Demand!But…what affects supply / demand of a stock?What Can Cause Stock Prices to Change?Earnings & growth expectationsPositive / negative newsEconomy sentimentInvestor sentiments & attitudesIrrational exuberance / behaviorTwo 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 financiallyHow 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 listedMarket 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 USStocks 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, chickenshttp://www.investopedia.com/university/stocks/stocks7.aspBrokerages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 balanceOpening 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-howBrokerages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/Different types of OrdersMarket OrderLimit OrderOrder executes to buy / sell at specified price of better (lower). Limit orders usually cost more, but useful for getting specified priceStop OrderOrder executes when the price surpasses a particular point, which helps buy or sell at a particular price. Limiting loss or locking profitsDifferent Types of OrdersStop Limit OrderExecuted at a specified price (or better) after a given stop price has been reached.JOrder becomes then a limit order to buy (or sell) at the limit price or betterPrecision purposesGood Until Cancelled (GTC)Good Until End of DayThings 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.comCurrent EventsInvestopedia SimulationHomework / ReadingSet up simulation account & start tradingOnline articles (Course website)–“The Five Biggest Stock Market Myths”–“Getting


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Berkeley ECON 98 - Basics of Investing I

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