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INVESTING IN STOCKS PART II

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Why Companies issue Stocks? A Form of Equity- Corporations do not have ... PREFERRED STOCKS. DIVIDEND IS KNOWN ... UP COMPANYS AND EMERGENT TECHNOLOGY COMPANIES ... – PowerPoint PPT presentation

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Title: INVESTING IN STOCKS PART II


1
INVESTING IN STOCKS PART II
  • SSG HENRY
  • 64TH BSB, CFN
  • PHONE 526-4942 PG 279-3951

2
READING THE WALL STREET JOURNAL
3
Why Companies issue Stocks?
  • A Form of Equity- Corporations do not have to
    repay equity
  • Dividends are not mandatory- many companies pay
    dividends but they are not required to.
  • Voting rights and Control- once you buy a share
    of stock you are considered part owner of the
    Company

4
WHY PURCHASE STOCKS?
  • INCOME FROM DIVIDENDS- SOME COMPANY PAYS
    QUARTERLY DIVIDENDS
  • PRICE APPRECIATION- PROFIT FROM GROWTH OVER TIME
  • STOCK SPLITS- SHORT TERM GAIN BECAUSE OF STOCK
    SPLIT

5
PREFERRED STOCKS
  • DIVIDEND IS KNOWN BEFORE PURCHASE
  • CUMMULATIVE- DIVIDENDS ARE PAID BEFORE COMMON
    STOCKHOLDER
  • CAN BE CONVERTED INTO A SET NUMBER OF COMMON
    SHARES

6
INVESTMENT SOURCES
  • INTERNET SEARCH ENGINES
  • YAHOO FINANCE
  • MSN MONEY CENTRAL
  • STOCK ADVISORY SERVICES
  • A) MORNINGSTAR
  • B) STANDARDS AND POOR
  • C) VALUE LINE
  • D) NEWSPAPER

7
COMMON STOCK CLASSIFICATION
  • BLUE CHIP STOCKS
  • INCOME STOCKS
  • GROWTH STOCKS
  • CYCLICAL STOCKS
  • DEFENSIVE STOCKS
  • LARGE CAP STOCKS
  • MEDIUM CAP STOCKS
  • SMALL CAP STOCKS
  • PENNY STOCKS
  • SPECULATIVE STOCKS

8
BLUE CHIP STOCKS
  • TYPE OF STOCK THAT ATTRACTS CONSERVATIVE
    INVESTORS. LESS SPECULATIVE THAN OTHER TYPE OF
    STOCKS

9
INCOME STOCKS
  • PAYS HIGH DIVIDEND, GOOD SOURCE OF INCOME FOR
    INVESTORS
  • HIGH DIVIDENDS AS MUCH AS 5 SUCH AS UTILITY
    COMPANIES REITS

10
GROWTH STOCKS
  • HIGHER THAN AVERAGE EARNINGS POTENTIALS. THEY ARE
    MOSTLY COMPANIES WITH QUALITY PRODUCTS, EXPANDING
    PRODUCT LINE, AND GOOD RESEARCH AND DEVELOPMENT.
  • OFTEN PAYS LITTLE OR NO DIVIDENDS

11
CYCLICAL STOCKS
  • FOLLOWS THE BUSINESS CYCLE
  • WHEN THE ECONOMY IS GROWING THESE STOCKS GROW,
    WHEN ITS DECLINING THESE STOCKS DECLINE AS WELL

12
DEFENSIVE STOCKS
  • PAYS STRONG DIVIDENDS AND MAINTAIN VALUE EVEN
    WHEN THE ECONOMY DECLINES.

13
CAPITALIZATION
  • LARGE CAP- MARKET CAP IN EXCESS OF 5 BILLION
    DOLLARS
  • MED CAP- BETWEEN 1 BILLION AND 5 BILLION IN
    TOTAL CAPITALIZATION
  • SMALL CAP- TOTAL CAPITALIZATION LESS THAN 500
    MILLION

14
PENNY STOCKS
  • STOCKS THAT TYPICALLY COST LESS THAN 1.00 PER
    SHARE HOWEVER SOME INVESTOR CONSIDERS STOCKS
    UNDER 10.00 AS PENNY STOCKS

15
SPECULATIVE STOCKS
  • COMMON OR PREFERRED STOCKS THAT OFFERS EXTREME
    DEGREES OF UNREALIZED APPRECIATED VALUATION AND
    DEPRECIATED EVALUATION. TYPICALLY START UP
    COMPANYS AND EMERGENT TECHNOLOGY COMPANIES

16
HOW TO EVALUATE STOCKS NUMERICALLY
  • EARNINGS PER SHARE
  • PRICE/EARNING
  • CURRENT YIELD
  • PEG RATIO
  • DIVIDENDS PAYOUT RATIO
  • TOTAL RETURN
  • ANNUALIZED HOLDING PERIOD RETURN
  • BETA

17
EARNINGS PER SHARE
18
Price Earning or PE Ratio
19
Current Yield
20
Price/Earning to Growth Ratio
21
Dividend Payout Ratio
22
Total Return
  • Total Return Dividend Income Price
    appreciation
  • 100 (1.00) 100 (50 - 40)
  • 100 1000
  • 1100

23
Annualized Holding Period Return
24
BETA
  • BETA IS A NUMBER EPORTED IN MANY PUBLICATIONS
    THAT GIVES AN INDICATION OF HOW VOLATILE THE
    STOCK IS, RELATIVE TO THE VOLATILITY OF THE
    MARKET AS A WHOLE

25
INVESTMENT THEORIES
  • FUNDAMENTAL ANALYSIS Based on the idea that the
    Stock Price is determine by future earnings.
  • TECHNICAL ANALYSIS Stock Price is based on
    supply and demand
  • EFFICIENT MARKET HYPOTHESIS Stock Market moves
    in a random order, so the Market is totally
    efficient

26
Buying and Selling Stocks
  • PRIMARY MARKET
  • Initial Public Offering (IPO)
  • Syndicated through Investment Banker
  • Directly to the Public
  • SECONDARY MARKET
  • Securities Exchange
  • Over the Counter Market

27
Securities Exchange
  • A Market Place where member Broker who represent
    Investors, meet to buy and sell securities
  • Physical Place
  • Companies must meet certain listing qualities

28
OVER THE COUNTER MARKET
  • A communication network of dealers, each of whom
    maintains an inventory of certain securities and
    stand ready to buy and sell those securities

29
ACCOUNT EXECUTIVES
  • Full Service Broker
  • Higher commission
  • More research information available at little or
    no cost
  • Give more advice to client
  • Other services available
  • Discount Broker
  • Lower commission
  • Less research or have to pay extra for it
  • Do not give much advice to clients
  • Often no other services available

30
TYPES OF ORDERS
  • MARKET ORDER Buy or Sell a stock at current
    price uring market hours
  • LIMIT ORDERS Buy or Sell a Stock at a specific
    price
  • DISCRETIONARY ORDER Empowers the account
    executives to buy and sell at their discretion.

31
BUYING ON MARGIN
  • Borrowing part of the money to buy the stock for
    a fee
  • Federal Reserves regulate how much can be
    borrowed, normally 50

32
SHORT SALES/OPTIONS
  • Investor borrow stocks from Brokerage House and
    sells it in the Market
  • The money is kept by the Broker at the end the
    investor
  • If he Investor can buy the stock back at a lower
    price, they keep the extra money
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