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STOCKSEssential Questions

1. In what ways does the stock market impact the personal wealth of an individual and a business?

2. Why diversify within a portfolio?

http://www.investopedia.com/video/play/pick-your-investing-style#axzz1cCDFWuQy

(Security, capital, stock ticker, stock symbol, bull & bear market, stock exchange, stock index, dividends, capital gain/loss, stock split, classifications (growth, income, blue chip, speculative, cyclical, countercyclical, commodity)

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Stocks

Securities: A document showing ownership of a publicly-traded company or a promise to collect borrowed funds. Securities are tradable.

* At their most basic, securities refer to stocks and bonds.

Stock: type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.

Capital: Money a business gets in order to operate.

• Equity Capital: Sale of stocks

• Debt Capital: Sale of bonds

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http://www.investopedia.com/video/play/stocks-versus-bonds#axzz1cCDFWuQy

http://www.investopedia.com/video/play/what-are-stocks#axzz1cCDFWuQy

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Stocks

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Public Corporation: Sell stock to anyone who is willing to purchase on public exchangevs. Private Corporation: Ownership is held by a select group

(IPO) Initial Public Offering: First time a company sells its stock to the public

http://www.investopedia.com/video/play/initial-public-offering#axzz1cCDFWuQy

Business & Stock After IPOhttp://www.investopedia.com/video/play/Why-Do-Companies-Care-About-Their-Stock-Price#axzz1cCDFWuQy

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Stock s

NYSE: Oldest/largest by vol. traded & mkt. cap. (2,800 Companies)• Issued at least 1 million shares worth $100 million• Earned >$10 million in last 3 years

NASDAQ: Largest trading volume (over 2,900)- More volatile• Issued 1.25 million shares worth $70 million• Earned >$11 million in last 3 years

OTC / Pink Sheets: Smaller companies & bonds• Unable to meet exchange requirements (penny stocks)

Stock ExchangesA place where securities are bought & sold by professional stockbrokers

Listing Requirements: Conditions imposed by a stock exchange upon companies that want to be listed on that exchange. (Min. # of shares, min. mkt. cap, & min. annual income

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Stocks

Capital Gain/Loss: Difference between the purchase price & selling price when an investor buys a security and sells it later.

Dividends: Portion of the profits paid to the shareholders of a company. Decided by board of directors & not required.

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

An imaginary portfolio of securities representing a particular market or a portion of it.• DJIA (The Dow Jones Industrial Average) – 30 Blue chip• S&P 500

Stock Index

http://www.investopedia.com/video/play/what-is-dividend#axzz1cCDFWuQy

http://www.investopedia.com/video/play/what-is-the-dow-jones-industrial-average#axzz1cCDFWuQy

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What Impacts stock price?

Company profit: Long term stocks grow w/ profit

Interest Rates: Higher rates = better returns on Bonds/Cds

Economy: How strong/weak the economy

Management: Company managers and CEOs

Industry: The other companies and markets

Technology: How technology is changing industries and consumers

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Make stock price go up:• Strong economic growth• Low interest rates• Low inflation• Strong industry conditions• Proper decisions by firm

Make stock price go down:• Weak economy• High interest rates• High inflation• Weak industry conditions• Improper decisions made by the firm

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Reading Stock Quotes

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

http://www.lifehack.org/articles/money/stock-quotes-how-to-read-%E2%80%94-and-use-%E2%80%94-them.html

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Stock Quote

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Dividend / Yield

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

Dividends are cash paid per share annuallyDividend yield is the yearly dividend expressed as a % of the price: (div x 4 / pps)

– If a company paid $1.28 in dividends (for the year) for a stock with a market price of $50.00, the dividend yield percentage would be 2.5% (1.28/50)

52-WeekHigh Low

Stock Div YLD%

EPS P/E Vol100s

Prev.Close

NetChg

43 36 AAR .32 2.5 2.25 22 1479 42 .027

http://www.investopedia.com/video/play/understanding-dividend-yields#axzz1cCDFWuQy

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Volume

52-WeekHigh Low

Stock Div YLD%

EPS P/E Vol100s

Prev.Close

NetChg

43 36 AAR .32 2.5 2.25 22 1479 42 .027

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

• Total number of shares traded throughout the day

• Prev. close is the price of the last share sold on the previous day

• Net change is the difference between the closing price of the share from the prior day and the current day

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Stock Classifications

• A variety of type of stocks are necessary for a diversified portfolio

Seven basic classifications- Growth - Countercyclical

- Income - Blue Chip

- Value - Speculative

- Cyclical

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Growth Stock

Growth stocks: consistent record of relatively rapid growth and earnings in all economic conditions– New companies expending product lines– Examples include Coca-Cola and Wal-Mart

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

Income StockIncome stocks pay higher than average

dividends– Company retains small portion of profits– Steady stream of income such as utility

companies– Dividend Yield over 5% & predictable

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Cyclical Stock

• Cyclical stocks are influenced by changes in the economic business cycle– Companies which operate in major

consumer dependent industries (Ford)

– Reflects state of economy

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Countercyclical Stock

• Countercyclical stocks: consistent returns even when the economy is suffering– Products are always in demand– Good for investors who want

dividends– Examples are utility companies and

grocery stores– Beta is 1.0 or below, even negative

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Speculative Stock

• Speculative stocks are companies with potential for substantial earnings– Very high risk stocks– Examples include internet and

video game companies

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Blue-chip Stock

• Blue-chip stocks: long records of profit, dividend payments, and a good reputation for management– Less risky– Grow at a consistent rate– Examples are McDonalds, Wal-Mart and

General Electric

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

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Ups and Downs• The term bull market means the market is doing well

because investors are optimistic about the economy and are purchasing stocks

• The term bear market means the market is doing poorly and investors are not purchasing stocks or selling stocks already owned

http://www.investopedia.com/video/play/what-are-bull-and-bear-markets#axzz1cCDFWuQy

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Stock Split

© Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock MarketFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of

Arizona

Shares Issued:Value:Your Shares:Your Value:

2 For 1 Split

Before After10,000 20,000$50/share $25/share200 shares 400 shares$10,000 $10,000

Types of OrdersMarket Order: Auction, buy or sell at current value

Limit Order: Buy or sell at a specific price

http://www.investopedia.com/video/play/understanding-stock-splits#axzz1cCDFWuQy

http://www.investopedia.com/video/play/how-do-limit-orders-work#axzz1cCDFWuQy

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Things to remember…

1. Looking at a stock price alone doesn’t tell us much about a stock2. If the stock price is close to the 52 week high, you may want to hold off3. Companies typically choose to reinvest their earnings (growth), give it

to shareholders (income) or a combination of the two4. High dividend yield - over (4%) = income stock5. Yield refers to the return to investors