COA 4131 1st Edition Lecture 24 Outline of Last Lecture I Finding a Financially Secure Insurer II Investment Defined III Preparations for Investing IV Four Steps in Investing Outline of Current Lecture II Types of Investments III Investing Strategies and Terms IV Investment Risks V Investment Categories VI Other Aspects of Investing VII Advice for Beginners VIII Diversification IX Did You Know X Common Stock XI The Value of Common Stock XII Preferred Stocks XIII Stock Reports in the Newspaper Financial Section Current Lecture A Types of Investments a Social Security b Company pensions c Large holdings d Your own business e Anticipated inheritance f Precious metals and collectibles g Annuities h Transaction costs involved in investing i Transaction costs B Investing Strategies and Terms a Risk and investment b Tradeoffs between risk and return i Realized return c Tax shelters d Dollar cost averaging i Dividend reinvestment plans DRIPs e Direct investment plans f Employee stock ownership plans g Investment formulas and experts i Think of it as a life cycle where you are going change certain things at certain times ii The younger you are the more risk you can take because you have more time to gain it back h Rebalancing and life cycle investing i Starting to invest i No right time to invest ii Just start when you are ready j Deciding to sell k Time to invest C Investment Risk a Chance that the actual return will be different than expected i There is a risk of losing some or all of your investment b High risk i Potential for above average returns c Low risk i Much safer ii Have lower potential for high returns D Investment Categories a How you perceive yourself as a risk taker will play an important role in your investment decision making b Conservatives like the least amount of risk and lowest potential c Aggressive likes the highest risk and highest potential d Moderate in middle e Moderately conservative is in between moderate and conservative f Moderately aggressive is in between moderate and aggressive E Other aspects of investing a Global investing i It s becoming a global market place ii Need investments that are worldwide 1 Can be based in U S and ship worldwide a Coca Cola based in Atlanta but sells around the world i 87 of business is outside of the U S b Nestle Caf is based in Switzerland but sold in U S and around the world c BP is based in Great Britain British Petroleum d Ikea is based in Switzerland e Colgate based in NYC but sold worldwide 2 Want to make sure the country is safe and stable a Research it beforehand b Women and investing i Women tend to underinvest ii Push to encourage women invest more c Investment clubs i Not very popular right now ii Popular when the economy goes up iii People in a group church neighborhood ect pull money together and invest it together in a stock 1 Decide as a group iv Main reason to do this is education 1 Learn about stocks and how to invest v To leave club 1 Members will buy out your share vi Need to be in it a few years for it to work and be worth it vii One club started 1988 in Texas 1 Can be very very old clubs or start a brand new one F Advice for Beginners a Know your risk level b Investigate i Look on the web ii Glassdoor com 1 Can look up all businesses and their stocks and information 2 Look at the comments section c Hope i Have to have good hope it will go well and make money d Stay the course i Stay in there e Invest f Diversity i Spread it around g Accumulate and sell i Allow it to build up and then you can sell it G Diversification a Mixing a variety of asset classes in a portfolio helps smooth performance of a portfolio i Increases chances of a more consistent performance b Aggressive is stocks c Bonds thought of as more conservative H Did you Know a If you had 1 000 in Yahoo in 1995 you would make back 1 150 back b If you put in 1 000 in Boston Market in 19995 you would get back 175 I Common Stock a Common Stock b Issuers of Common Stock i The Buckle 1 Look for 52 week high and 52 week low 2 Low PE ratio a Low risk which is good c The value of Common Stock i Dollar Appreciation of stock value 1 Goes up in value 2 You buy it you hold onto it ii Stock splits 1 Company tells general public 2 Will usually go up in value 3 If you own 100 shares of Colgate and they announce on April 30th a two for one split a Suddenly you will have 200 shares for half the price i Psychologically people feel better with 200 shares versus 100 shares b If you had no shares in Colgate but saw this split you would want to invest and hopefully it should go up in value c Usually selling for 100 a share i Two for one split will cost 50 ii Next day it will go up to 51 d The value of Common Stock i Dividends 1 Cash 2 Company products property or discounts a If invested in Coach they may give you 10 off discount b Wrigley Gum used to give a pack of gum on Christmas but don t do that anymore c Rare today 3 Stock dividends a Instead of giving you cash they will give you an extra share for example e Common stock versus preferred stock i Preferred has a little PF in the corner 1 Pays dividends 2 A little more expensive 3 Tends to be older investors 4 If the company goes under they will pay off company holders first preferred stock second then common stock holders 5 More secure and more conservative 6 They are 52 week lows and highs ii Common stock you get to vote on what company does 1 Preferred stock no voting 2 Once a year annual meeting 3 Get to vote and approve board what is working for their company what s not working 4 It s a way to get into local economy meet people socialize ect 5 Usually feed you lunch 6 Lowes in Charlotte NC 7 Capital City Bank in Tallahassee a Creator is an FSU alum b Started at the capital 8 Coca Cola in Atlanta GA J Preferred Stock a Par value i Face value of security b Callable preferred stock i The company can call the stock back and offer you cash for what it is 1 Look up its value and compare it to what they are giving you 2 Can t force you to give it up but will give you an incentive c Merger i ii iii iv Two companies combine U S Airs and American Airlines coming together Usually a good thing for stock holders Not good for employees 1 Start …
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