Chapter 16: Buying and Selling Securities

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Chapter 16 Buying and Selling Securities
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Objectives

• Explain the operation and regulation of
  securities markets.
• Discuss factors to consider when selecting a
  brokerage firm.
• Interpret newspaper quotations for listed
  securities.

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Objectives

• Describe the process of buying and selling
  securities.
• List the major sources of investment information
  about securities.
• Estimate and calculate potential returns on
  investments.

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Objectives

• Explain the 12-step investment process.

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Buying and Selling Securities

• specializes in buying and selling negotiable
  securities, such as stocks, bonds, and mutual
  funds.

BROKERAGE FIRM
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Securities Markets

• Initial public offerings (IPOs)
• Investment banking firms
• Venture capitalists

PRIMARY MARKET
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Flow of Stocks and Bonds in Primary Markets
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Securities Markets

• Securities markets
• Stock broker
• Account executive
• Registered representative

SECONDARY MARKETS
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Flow of Securities in Secondary Markets
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Securities Markets

• New York Stock Exchange
• American Stock Exchange
• Regional Stock Exchanges
• NASDAQ Over-the Counter Market

ORGANIZED STOCK EXCHANGES
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Securities Markets

• SECURITIES MARKET REGULATION
• Self-regulation
• State
• Federal
• Investors insurance

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Brokerage Firm Operation

• General brokerage firms
• Commissions and fees
• Discount brokerage firms
• Opening an account

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Interpretation of Quotations

• Columns 1 and 2 52 weeks, high and low
• Column 3 Stocks
• Column 4 Sym
• Column 5 Div
• Column 6 Yld
• Column 7 P/E
• Column 8 Vol 100s
• Column 9,10,11 High, Low, Close
• Column 12 Net Chg

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Securities Transactions and the Investor

• Trading process
• Matching or negotiating prices
• Types of orders
• Market Order
• Limit Order
• Stop Order

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Securities Transactions and the Investor

• Time limits
• Purchasing mutual funds
• Direct purchase
• Contractual accumulation plan

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Information About Securities

• General economic conditions
• Securities market indexes
• Dow Jones Industrial Average (DJIA)
• Standard Poors 500
• New York Stock Exchange Composite
• American Stock Exchange (AMEX)
• NASDAQ Composite
• Nikkei Dow

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Information About Securities

• Information about industries
• Trade associations
• Industry-oriented investment publications

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Information About Securities

• Information about specific companies and funds
• Annual reports
• Prospectuses
• Profile prospectuses
• 10-K reports
• Investment rating publications
• Research reports

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Estimating and Calculating Potential Returns on
Investments

• Use Beta to calculate estimated required rate of
  return
• Calculate potential rate of return on particular
  investment
• Compare estimated required rate of return with
  projected rate of return

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Total Estimated Rate of Return Calculation
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How to Invest A Twelve-Step Process

• 1. Identify personal investment philosophy.
• 2. Identify desired total return.
• 3. Keep an eye on local situations.
• 4. Set time horizon for investing objectives.
• 5. Choose your preferred investment medium.
• 6. Study available investment alternatives.

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How to Invest A Twelve-Step Process

• 7. Choose an investment for it components.
• 8. Invest in companies that will out earn
  competitors.
• 9. Develop plan for investing and stick with
  it.
• 10. Diversify portfolio.
• 11. Invest regularly.
• 12. Reinvest earnings.