STOCKS

1
STOCKS

• Definition
• --Ownership interest in a
• corporation

2
STOCK FACTS

• Stocks may help you achieve long-term financial
  goals
• Stock prices rise and fall
• Good management reduces risk

3
STOCK FACTS

• Sold in shares
• Shares individual units of ownership
• Shareholdersinvestors who purchase
• stock
• Shareholderspart owners
• Shareholdersmay make
• Shareholdersmay lose

4
HOW ARE STOCKS TRADED?

• Initial public offeringinvestors buy directly
  from the company
• Laterinvestors usually buy from owners who want
  to sell stock
• Stock Marketorganized trading of stock

5
WHERE ARE STOCKS TRADED?

• Stock Exchangetrading floor
• NYSENew York Stock Exchange
• (oldest stock exchange largest
• and wealthiest companies)
• AMEXAmerican Stock Exchange
• (second oldest stock exchange
• small and medium-sized
• companies)
• requirements must be met to be listed
• on an exchange

6
STOCK FACTS

• Over-the-counter stocksnot listed on any stock
  exchange
• Traded through phone and computer
• Nasdaqlargest electronic network lists stocks

7
STOCK MARKET REGULATION

• Securities and Exchange Commission
• --requires disclosure of accurate and honest
  information
• --brings lawsuits against fraudulent companies
• --oversees activities of the exchanges, OTC
  stocks, investment advisors, and others involved
  in buying/selling stock

8
RETURNS ON STOCKS

• DIVIDENDS
• payment to shareholders that represents a
  portion of the companys net profits
• usually paid 4 x yr.

• CAPITAL GAINS AND LOSSES
• capital gain--buy low/sell high
• capital losssell lower than bought

9
STOCKBROKER

• Individual or firm that will buy and sell stock
  for clients
• --full service brokers-buy/sell, advise
• --discount brokers-basic service cost much less
• On-line brokers help find info for clients.

10
OTHER WAYS TO BUY STOCK

• 401(k) Plan
• ESOP (employee stock option program)
• Direct stock plan (buy directly from company)

11
RISKS OF OWNING STOCK

• Companys Health
• Industry Trends
• Economic Factors
• National and World Events

12
TRACKING THE STOCK MARKET

• INDEXESway to measure overall price changes in
  the stock market
• Nasdaq Composite Indextracks 5,000 domestic
  stocks
• Dow Jones Industrial Averagetracks 30 large,
  well-known companies (financial services,
  technology, retail, entertainment, and consumer
  goods)

13
TYPES OF STOCK/RISKS

• COMMON STOCK
• Voting rights
• Dividends vary
• Risk varies
• Return varies

• PREFERRED STOCK
• No voting rights
• Dividends fixed
• Less risk
• Fixed return

14
MINIMIZE THE RISK

• Long-term investment
• Diversified portfolio
• Research and monitor
• Maintain discipline

15
Assignment

• PAGE 350
• QUESTIONS 1, 2, 10