Title: Chapter 16: Buying and Selling Securities
1Chapter 16 Buying and Selling Securities
2Objectives
- Explain the operation and regulation of
securities markets. - Discuss factors to consider when selecting a
brokerage firm. - Interpret newspaper quotations for listed
securities.
3Objectives
- Describe the process of buying and selling
securities. - List the major sources of investment information
about securities. - Estimate and calculate potential returns on
investments.
4Objectives
- Explain the 12-step investment process.
5Buying and Selling Securities
- specializes in buying and selling negotiable
securities, such as stocks, bonds, and mutual
funds.
BROKERAGE FIRM
6Securities Markets
- Initial public offerings (IPOs)
- Investment banking firms
- Venture capitalists
PRIMARY MARKET
7Flow of Stocks and Bonds in Primary Markets
8Securities Markets
- Securities markets
- Stock broker
- Account executive
- Registered representative
SECONDARY MARKETS
9Flow of Securities in Secondary Markets
10Securities Markets
- New York Stock Exchange
- American Stock Exchange
- Regional Stock Exchanges
- NASDAQ Over-the Counter Market
ORGANIZED STOCK EXCHANGES
11Securities Markets
- SECURITIES MARKET REGULATION
- Self-regulation
- State
- Federal
- Investors insurance
12Brokerage Firm Operation
- General brokerage firms
- Commissions and fees
- Discount brokerage firms
- Opening an account
13Interpretation 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
14Securities Transactions and the Investor
- Trading process
- Matching or negotiating prices
- Types of orders
- Market Order
- Limit Order
- Stop Order
15Securities Transactions and the Investor
- Time limits
- Purchasing mutual funds
- Direct purchase
- Contractual accumulation plan
16Information 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
17Information About Securities
- Information about industries
- Trade associations
- Industry-oriented investment publications
18Information About Securities
- Information about specific companies and funds
- Annual reports
- Prospectuses
- Profile prospectuses
- 10-K reports
- Investment rating publications
- Research reports
19Estimating 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
20Total Estimated Rate of Return Calculation
21How 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.
22How 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.