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FSU COA 4131 - Stocks

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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 KnowX. Common Stock XI. The Value of Common Stock XII. Preferred StocksXIII. Stock Reports in the Newspaper Financial Section Outline of Current Lecture I. Stock Reports in the Newspaper Financial SectionII. Stock Market IndicatorsIII. Four Numerical MeasuresIV. Three Investment TheoriesV. Buying and Selling StocksVI. The Language of Buying and Selling VII. Advice on Your First StockVIII. People you Can Trade From Current LectureA. Stock Reports in the Newspaper Financial Section a. Stock Advisory Servicesb. Stock Classificationsi. Blue Chip Stocks1. The most valuable stocks based on history of company 2. GE, GM, McDonald’s3. Pay dividends4. High quality management5. Wal-Mart is biggest company in world 6. Verizon and AT&Tii. Cyclical Stocks1. Follow the business cycle2. When economy goes up, they start to grow as well3. Home builder companiesa. Home Depot, Lowes4. Ford, Deer, Caterpillara. Caterpillar is construction company iii. Defensive stocks 1. Have dividends and are stable, regardless of the economy 2. Drug stores, for examplea. CVS, Walgreens, Johnson & Johnson 3. Grocery stores4. Regardless of the economy people still need to buy basic necessities iv. Growth Stocks1. What we are interested in 2. Dell, Microsoft, Applev. Income Stocks1. Pay better than average dividends2. Better than average companies3. Located in places with high population growth where more energyis needed4. Retirees want these because you want to collect these dividends 5. Southern Company, Florida Power and Light, Pacific Gas and Electric, AT&Tvi. Speculative Stocks1. Take the biggest chance2. 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 Industryi. 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 morningii. 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 30a. Been in there the longestb. Original 2. 1928 was the first oneiii. 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 establishedii. Some people say this is the best way to go c. NASDAQ Indexi. Younger stocks and technology stocks ii. All electronic1. Can’t go anywhere and visit them d. Russell 2000 small stock indexe. Wilshire 5000 equity index f. Bull and Bear Marketi. Bull Market1. When the market is going up2. Merril Lynch uses this as their symbolii. Bear Market 1. When the market goes down C. Four Numerical Measuresa. Book Valuei. 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 soldiii. A numerical number to look at iv. If book value is worth more than selling price, they are selling it to you formore than it’s worth b. Earnings per sharei. 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 onii. Price of one shared stock versus annual earning of the whole yeariii. 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 0.5-2.5iv. A lot lower numberv. The lower the number the better vi. Conservative people would look for lower betavii. Risk takers people would look for higher betas viii. High beta would do better in bull market D. Three Investment Theoriesa. Efficient Market Theoryi. Aka Random Walk Theoryii. Impossible to beat the market so don’t try to forecastiii. 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 Theoryi. 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 marketii. Into numbers iii. Has their own numbers and their own techniques E. Buy and Selling Stocksa. Primary Marketi. The original people who own the stock b. Secondary Marketi. What most of us trade inii. Other people buy the stock and we are buying it from them c. Securities Exchangesi. New York Stock Exchange in NY ii. All electroniciii. Smaller exchangesiv. Exchanges around the worldv. Who you buy through vi. Nicely organized d. Over the Counter (OTC) Market i. Apple wanted to be this; not go through stock marketii. 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 month1. Leaning more towards computerized versionF. The Language of Buying and Sellinga. Market orderi. The price in the market at that time1. Fluctuates b. Limit orderi. Say a specific priceii. Don’t stray form that price (won’t go above it) c. Stop orderi. Sells below a certain price you are not going to want it d. Discretionary orderi. Account executive can decide which stock to buy for you e. Round lotsi. Buy things in groups1. Supposedly it’s cheaper f. Odd lots i. Buying one at a time g. Securities regulationsi. State regulationsii. Federal regulation1. Securities and Humane Commissiona. Started in 1934 because it was after Great Depressionb. Decided the economy is not stable and needs to be controlled 2. Insider tradinga. You found out about a company in a way that no one in thegeneral public could find out


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FSU COA 4131 - Stocks

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