introduction to the stock market

GUTIC Edward Thomson 27th September 2012

9/26/2012 2010 DB Blue template

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[Subject of presentation]

[Your name][Date]

Introduction to the stock marketEdward Thomson

www.gutic.co.uk


Before we start…

Stocks (American) = Shares (British)

Please like our new Facebook page:

www.facebook.com/guticnow


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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

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2010 DB Blue template


I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion


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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?)

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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

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Chasing wiggles

Wiggles are noise – short term thinking

Long term – stock market is up

Long term view


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I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion


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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.

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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.

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Example – GGP (AIM listed)


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Slow moving – very few trades

More trades – faster price movement

Popularity (sentiment) drives short term price

volume

Share pricedoesn’t necessarilyreflect value


I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion


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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?

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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

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I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion


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Getting started – example using Google finance: Tesco

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

Similarcompanies

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I. Introduction

II. Market Dynamics

III. Strategies

IV. Getting started

V. Conclusion


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Conclusion


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— 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)

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introduction to the stock market

Business

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