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 TodayAdministrative IssuesLecture content: Basics of Investing–What is a stock?–How are they traded?–What are brokerages?–Different types of orders–What is the market?–TerminologyLearning how to use the simulation; IBDCurrent EventsAssignments / ReadingsAdministrative IssuesAttendance & Sign-InName TagsEnrollmentEmailsWebpageSyllabus ReviewNews Presentation Sign UpsInvestor’s Business Daily AccessLecture ContentWhat is a stock?Common stock Gives you a “share” of ownership of a publicly traded companyStock 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, LUVStock quotes–List of prices for a stock at a particular point during the trading dayStock tickers–What do those green and red numbers mean?Basic Stock QuoteMore Stock QuotesDifferent Types of StockPreferred Stock–No voting rights to company issues–Issued fixed dividends forever – main form of returnCommon 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 gainsWhat are capital gains?–Increase in asset value relative to the purchases price–Not realized until asset is actually sold–Example.Stocks vs. BondsStocks are equity–Generally considered riskier–Quite possible to lose a significant portion, if not all, of your money–Potential for high returnsBonds are debt–Lower and usually fixed return–Higher claim than stockholdersWhat does this mean?Dividend DebateDistribution 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 expectationsPositive / negative newsEconomy sentimentInvestor sentiments & attitudesIrrational exuberance / behaviorTwo MarketsPrimary 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 publicSecondary 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 TradedMajor exchanges –Lists stocks (and other securities), sets policies for how stocks are tradedNew York Stock Exchange (NYSE)American Stock Exchange (AMEX)National Association of Securities Dealers Automated QuotationOnly “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 marketS&P 500–500 stocks chosen by Standard & Poor to represent US stock marketNASDAQ CompositeDow Jones Industrial Average–30 most significant stocks tradedS&P 600 Small-CapRussell 3000–3000 of the largest stocks in the USStocks Markets & AnimalsBull Market–When everything in the market is going great and stocks are generally heading upwardsBear Market–When everything is NOT GOOD and stocks are generally headed NOTE: Nothing lasts forever! Good times and bad times will end at some pointOther animal terms: pigs, chickenshttp://www.investopedia.com/university/stocks/stocks7.aspBrokeragesNeed a medium to trade through – this is where brokerages come inCash vs. margin accountCriteria–Full service vs. discount–Fees (commission)–Services / tools–Minimum balanceOpening an AccountNot 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 daysCash accounts usually never turned down–Margin accounts difficult if you have pretty bad credit historyWhat you will need: a computer, starting capital, and investing know-howBrokeragesSome links for brokerage comparisons–Find something that works for what YOU need–No one broker that is best for all investorshttp://www.investingonline.org/gso/broker_ratings.htmlhttp://www.consumersearch.com/www/internet/online-brokers/http://www.stockbrokerguide.com/http://online-stock-trading-review.toptenreviews.com/Different types of OrdersMarket OrderLimit OrderOrder executes to buy / sell at specified price of better (lower). Limit orders usually cost more, but useful for getting specified priceStop OrderOrder executes when the price surpasses a particular point, which helps buy or sell at a particular price. Limiting loss or locking profitsDifferent Types of OrdersStop Limit OrderExecuted 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 betterPrecision purposesGood Until Cancelled (GTC)Good Until End of DayThings to InternalizeLearn the basics!–Need to know what basic terms mean–Articles should help youAdvantages of starting young Useful resources for stock tutorials–www.investorwords.com–http://www.investopedia.com/university/–www.fool.comCurrent EventsInvestopedia SimulationHomework / ReadingSet up simulation account & start tradingOnline articles (Course website)–“The Five Biggest Stock Market Myths”–“Getting
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