introduction to the stock market

GUTIC Edward Thomson 27th September 2012

9/26/2012 2010 DB Blue template

1

[Subject of presentation]

[Your name][Date]

Introduction to the stock marketEdward Thomson

www.gutic.co.uk

GUTIC Edward Thomson 27th September 2012

Before we start…

Stocks (American) = Shares (British)

Please like our new Facebook page:

www.facebook.com/guticnow

9/26/2012 2010 DB Blue template

2

GUTIC Edward Thomson 27th September 2012

I. Introduction - What are shares?- Why invest?

II. Market Dynamicss- What drives the market?

III. Strategies- Fundamental vs technical

IV. Getting started- Using Google finance

V. Conclusion

Content

04/12/23 12:07 AM 2010 DB Blue template

3

9/26/2012

3

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion

04/12/23 12:07 AM 2010 DB Blue template

4

9/26/2012

4

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

What are shares?

Share market (eg London Stock Exchange)

— Companies looking to raise money (capital)

— Company sells part ownership:

Investor becomes an owner of the company

— Different from a loan (corporate bond): money paid back with interest.

— You may never get your money back with shares (risky?)

9/26/2012

5

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Why invest?

Rewards

— Dividends: a share of the companies profits

— similar to interest in a bank account

— superior returns to a savings account

— Growth: appreciation of asset price

— price could collapse to zero

— Voting rights – determine how company is run

Riskier than bonds or cash but potentially greater rewards

9/26/2012

6

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Chasing wiggles

Wiggles are noise – short term thinking

Long term – stock market is up

Long term view

9/26/2012 2010 DB Blue template

7

GUTIC Edward Thomson 27th September 2012

I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion

04/12/23 12:07 AM 2010 DB Blue template

8

9/26/2012

8

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Market Dynamics --- What drives prices?

Supply vs Demand

— Low demand: lower price Low supply: higher price

— High demand: higher price High supply: lower price

— Supply:

— How many shares are there in existence? (millions)

— Are there many sellers? (market conditions)

— Is there easy access? (stockbroker availability)

The supply side is probably easier to understand.

9/26/2012

9

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Market Dynamics

— Demand:

— How popular is the company? (hot tech stock)

— Are there many buyers? (crowded market place)

— What drives popularity?

— How do we determine a fair price for the company?

— Are we willing to pay a premium in order to get a great company?

— What about sentiment? (good news and bad news)

Decision making in the market place is like a virus.

An idea spreads as it gains popularity.

Irrationality can take over.

9/26/2012

10

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Example – GGP (AIM listed)

9/26/2012 2010 DB Blue template

11

Slow moving – very few trades

More trades – faster price movement

Popularity (sentiment) drives short term price

volume

Share pricedoesn’t necessarilyreflect value

GUTIC Edward Thomson 27th September 2012

I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion

04/12/23 12:07 AM 2010 DB Blue template

12

9/26/2012

12

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Analysis strategies

Fundamental vs Technical

— Fundamental analysis

judge company value and determine fair price

— long term investment (years)

— short term price movement irrelevant

— want good history of dividends

— Technical analysis

determine how price will change

— short term focus (weeks/days/seconds)

— trading not investing

— fundamentals not important

— use technical indicators / complex models

Would you pay £10 for an apple?

9/26/2012

13

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Analysis strategies

Passive vs Active

— Passive funds

Buy & hold the market – follows an index

— long term investment (years)

— growth through volume and dividends

— low cost, few transactions / taxes

— Active funds

Try to beat the market, or perform a specialist role

—Tries to pick the best stocks in the market

—Can have many transactions (costs)

—Can engage in shorting and hedging

—Time horizon varies

9/26/2012

14

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion

04/12/23 12:07 AM 2010 DB Blue template

15

9/26/2012

15

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Getting started – example using Google finance: Tesco

Price (pence) Day’s movement Company news‘value’ numbers

Similarcompanies

9/26/2012

16

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion

04/12/23 12:07 AM 2010 DB Blue template

17

9/26/2012

17

2010 DB Blue template

GUTIC Edward Thomson 27th September 2012

Conclusion

04/12/23 12:07 AM 2010 DB Blue template

18

— Investing in stocks should give good returns

— Has risks

— Supply and Demand drive price

— The demand side can be very complicated

— Price does not reflect true value

— Sentiment affects price but value

— Stocks can become over valued (or under valued)

9/26/2012

18

2010 DB Blue template