COA 4131 1st Edition Lecture 25 Outline of Last 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 Outline of Current Lecture I Stock Reports in the Newspaper Financial Section II Stock Market Indicators III Four Numerical Measures IV Three Investment Theories V Buying and Selling Stocks VI The Language of Buying and Selling VII Advice on Your First Stock VIII People you Can Trade From Current Lecture A Stock Reports in the Newspaper Financial Section a Stock Advisory Services b Stock Classifications i Blue Chip Stocks 1 The most valuable stocks based on history of company 2 GE GM McDonald s 3 Pay dividends 4 High quality management 5 Wal Mart is biggest company in world 6 Verizon and AT T ii Cyclical Stocks 1 Follow the business cycle 2 When economy goes up they start to grow as well 3 Home builder companies a Home Depot Lowes 4 Ford Deer Caterpillar a Caterpillar is construction company iii Defensive stocks 1 Have dividends and are stable regardless of the economy 2 Drug stores for example a CVS Walgreens Johnson Johnson 3 Grocery stores 4 Regardless of the economy people still need to buy basic necessities iv Growth Stocks 1 What we are interested in 2 Dell Microsoft Apple v Income Stocks 1 Pay better than average dividends 2 Better than average companies 3 Located in places with high population growth where more energy is needed 4 Retirees want these because you want to collect these dividends 5 Southern Company Florida Power and Light Pacific Gas and Electric AT T vi Speculative Stocks 1 Take the biggest chance 2 Can be brand new volatile history of up and down based on one invention or one product 3 Dell and Microsoft were speculative when they first started out and now they are blue chip c Stock Classification by Industry i Classes Used by S P Index 1 Watch top 500 stocks in the country ii Pick some stocks from previous categories and what industry they are from so they are not all in retail or all in electrics want to diversify B Stock Market Indicators a Dow Jones Industrial Average DIJA i Announce this on the news every morning ii Movement of 30 stocks that are selected stay these 30 stocks for a few years 1 General Electric was an original stock and will stay in the 30 a Been in there the longest b Original 2 1928 was the first one iii Mix different industries and see how they are going b Standard and Poor s Index S P 500 i You just buy something that has been established ii Some people say this is the best way to go c NASDAQ Index i Younger stocks and technology stocks ii All electronic 1 Can t go anywhere and visit them d Russell 2000 small stock index e Wilshire 5000 equity index f Bull and Bear Market i Bull Market 1 When the market is going up 2 Merril Lynch uses this as their symbol ii Bear Market 1 When the market goes down C Four Numerical Measures a Book Value i Assets minus Liabilities divided by number of outstanding shares of common stock ii Value of the stock divided by number of shares that are being sold iii A numerical number to look at iv If book value is worth more than selling price they are selling it to you for more than it s worth b Earnings per share i Profit devoted to each share of stock ii The company will keep some money to put into their growth but then divide out the rest c Price Earnings P E or PE ratio i Main one that is reported and main one to focus on ii Price of one shared stock versus annual earning of the whole year iii If it s low it is more secure and stable iv 5 20 PE is a good number 1 Secure and stable v 60 100 PE 1 New and young and experimental companies d Beta Coefficient i Measures stock s volatility ii Is reported when you research them iii Most stocks beta falls between 0 5 2 5 iv A lot lower number v The lower the number the better vi Conservative people would look for lower beta vii Risk takers people would look for higher betas viii High beta would do better in bull market D Three Investment Theories a Efficient Market Theory i Aka Random Walk Theory ii Impossible to beat the market so don t try to forecast iii It runs efficiently and goes through its own system iv Just walk through the pages and be passive because it will all work out in the end b Fundamental Theory i You have to figure out the real value of the stock and figure out its future c Technical Theory i Has to do with trends and patterns in the market ii Into numbers iii Has their own numbers and their own techniques E Buy and Selling Stocks a Primary Market i The original people who own the stock b Secondary Market i What most of us trade in ii Other people buy the stock and we are buying it from them c Securities Exchanges i New York Stock Exchange in NY ii All electronic iii Smaller exchanges iv Exchanges around the world v Who you buy through vi Nicely organized d Over the Counter OTC Market i Apple wanted to be this not go through stock market ii All posted on Wall Street e Steps in a typical transaction i Tell broker online or in person that you want to buy some in the stock exchange ii Clerk will signal electronically or in person that someone wants to buy or sell iii Will say okay and signal back to clerk that yes you bought it iv Bid put in someone has to confirm it v Can be all sent through your computer or statement sent in mail once a month 1 Leaning more towards computerized version F The Language of Buying and Selling a Market order b c d e f g h i i The price in the market at that time 1 Fluctuates Limit order i Say a specific price ii Don t stray form that price won t go above it Stop order i Sells below a certain price you are not going to want it Discretionary order i Account executive can decide which stock to buy for you Round lots i Buy things in groups 1 Supposedly it s cheaper Odd lots i Buying one at a time Securities regulations i State regulations ii Federal regulation 1 Securities and Humane Commission a Started in 1934 because it was after Great Depression b Decided the economy is not stable and needs to be controlled 2 Insider trading a You found out about a company in a way that no one in the …
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