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 KnowX. Common Stock XI. The Value of Common Stock XII. Preferred StocksXIII. Stock Reports in the Newspaper Financial Section Current LectureA. Types of Investmentsa. Social Securityb. Company pensionsc. Large holdings d. Your own businesse. Anticipated inheritancef. Precious metals and collectiblesg. Annuities h. Transaction costs involved in investingi. Transaction costsB. Investing Strategies and Termsa. Risk and investmentb. Tradeoffs between risk and returni. Realized returnc. Tax sheltersd. Dollar cost averaging i. Dividend reinvestment plans (DRIPs)e. Direct investment plansf. Employee stock ownership plans g. Investment formulas and expertsi. Think of it as a life cycle where you are going change certain things at certain timesii. 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 investi. No “right time” to investii. Just start when you are ready j. Deciding to sellk. Time to invest C. Investment Risk a. Chance that the actual return will be different than expectedi. There is a risk of losing some or all of your investmentb. High riski. Potential for above average returnsc. Low riski. Much saferii. Have lower potential for high returns D. Investment Categoriesa. How you perceive yourself as a risk taker will play an important role in your investment decision makingb. Conservatives like the least amount of risk and lowest potential c. Aggressive likes the highest risk and highest potentiald. Moderate in middle e. Moderately conservative is in between moderate and conservativef. Moderately aggressive is in between moderate and aggressive E. Other aspects of investinga. Global investingi. It’s becoming a global market placeii. Need investments that are worldwide1. Can be based in U.S. and ship worldwidea. Coca Cola based in Atlanta but sells around the worldi. 87% of business is outside of the U.S. b. Nestle Café is based in Switzerland but sold in U.S. and around the worldc. BP is based in Great Britain (British Petroleum)d. Ikea is based in Switzerlande. Colgate based in NYC but sold worldwide2. Want to make sure the country is safe and stable a. Research it beforehand b. Women and investingi. Women tend to underinvestii. Push to encourage women invest more c. Investment clubs i. Not very popular right nowii. Popular when the economy goes up iii. People in a group (church, neighborhood, ect) pull money together and investit together in a stock1. Decide as a group iv. Main reason to do this is education1. Learn about stocks and how to invest v. To leave club1. Members will buy out your sharevi. Need to be in it a few years for it to work and be worth it vii. One club started 1988 in Texas1. Can be very very old clubs or start a brand new one F. Advice for Beginnersa. Know your risk levelb. Investigatei. Look on the web ii. Glassdoor.com1. Can look up all businesses and their stocks and information 2. Look at the comments section c. Hopei. Have to have good hope it will go well and make moneyd. Stay the coursei. Stay in there e. Investf. Diversityi. 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 portfolioi. Increases chances of a more consistent performance b. Aggressive is stocksc. Bonds thought of as more conservative H. Did you Knowa. If you had $1,000 in Yahoo in 1995, you would make back 1,150% backb. If you put in $1,000 in Boston Market in 19995, you would get back $175I. Common Stocka. Common Stockb. Issuers of Common Stock i. The Buckle 1. Look for 52 week high and 52 week low 2. Low PE ratioa. Low risk, which is good c. The value of Common Stocki. Dollar Appreciation of stock value1. Goes up in value2. You buy it, you hold onto it ii. Stock splits 1. Company tells general public2. 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 sharesb. 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 sharei. Two-for-one split will cost $50ii. Next day it will go up to $51 d. The value of Common Stocki. Dividends1. Cash2. Company products property, or discountsa. If invested in Coach, they may give you 10% off discountb. Wrigley Gum used to give a pack of gum on Christmas, but don’t do that anymorec. 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 stocki. Preferred has a little “PF” in the corner1. Pays dividends2. A little more expensive3. 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 meeting3. 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, ect5. Usually feed you lunch 6. Lowes in Charlotte, NC7. Capital City Bank in Tallahasseea. Creator is an FSU alum b. Started at the capital 8. Coca Cola in Atlanta, GAJ. Preferred Stocka. Par valuei. Face value of security b. Callable preferred stocki. 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. Mergeri. Two companies combine ii. U.S. Airs and American Airlines coming together iii. Usually a good thing for stock holders iv. Not good for employees1. Start cutting backv. Look for who’s buying who and why d. Four main typesi. Cumulativeii. Participating preferred stock1. Very rareiii.
View Full Document
Unlocking...