HACE 3200 1nd Edition Lecture 24Outline of Last Lecture I. SecuritiesII. Trading through BrokersIII. Investing in StocksOutline of Current LectureI. Limited liabilityII. ProxyIII. Blue- Chip StocksCurrent Lecture- Basic Common Stock Terminology and Featureso Limited liability—the company goes broke, you can only lose the amount you investedo Claim on income—as a shareholder you have a right to any earnings of the company after all obligations are meto Claims on assets—common shareholders can claim their assets only after debtorsand preferred stock holders have been paido Voting rights—you have the right to vote however, this right is proximally executed through a proxyo Proxy—an agreement allowing a designated party to “vote your shares”o Stock splits- the company cuts the stock price and you get more shares, but retain the same total investment In a 2:1 split- 100 shares selling for $100 will split into 200 shares at $50 eacho Stock repurchases—companies buying back their own stocko Stock spin- out—where a company “splits off” sections of itself as a separate businessThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.o The common definition of spin out is when a divisions of a company or organization becomes an independent business. The “spin out” company takes assets, intellectual property, technology, and/or existing products from the parent organizationo Many times the management team of the new company are from the same parent organization. Often, a spin-out offers the opportunity for a division to be backed by the company but not be affected by the parent company’s image or history- General Classifications of Common stock- Blue Chip Stockso Stock issued by large well-known companieso Normally have sound financial historieso Normally have solid dividend and growth records- Growth Stockso Stocks issued by companies whose sales and earnings growth have outpaced the marketo Often are newly formed, smaller companies Example: Microsoft- Income Stockso Stocks issued by mature firms that normally pays high dividendso Usually have low growth rates Example: Utility companies- Speculative Stockso Stocks issued by higher risk companies and generally sold on the OTC marketo Some are associated with astronomical gains and losses- Cyclical Stockso Stocks issued by companies whose earnings tend to follow the economy Example: Ford and General Motors- Defensive Stockso Issued by companies whose earnings tend to move inversely to the broader economy and may actually increase during economic downturns- Large- Caps, Mid-Caps, and Small-capso Large-caps Stable, mature companies, % billion or more in assetso Mid-Cap 1- 5 billion in assetso Small-cap 100 million-1 billion in assets; high volatility, higher returnso Micro-cap 100 million or less- Tracking your stockso Newspapero On-lineo Trade journals- Reading Stock Quoteso 52 weeks Hi/Lo—the range the stock has traded in over the past yearo Ticker- the companies ticker tape symbolo DIV- the stock’s annual cash dividendo Yld%- percentage yield, or the cash dividend divided by the closing priceo PE: Price/earnings ratio- divide stock price by earnings/share from last 4 quarterso Vol 100’s- number of shares tradedo Hi Lo Close- the highest lowest, and last trading priceo Net Chg- the net change from the previous trading day’s closing value- Bull Marketo When stock prices are risingo People are finding jobso GDP is growingo Everything looks rosyo Most stocks are going upo Do not last forever, especially if stocks become over-valued- Bear Marketo Falling stock priceso Recessiono High unemploymento High inflationo Tough to prick profitable
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