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Stock%20Market%20Basics

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Title: Stock%20Market%20Basics


1
Stock Market Basics
2
WHAT IS A STOCK?
  • A stock represents partial ownership of a
    corporation.
  • When you buy shares of a stock, the company gives
    you a stock certificate which shows that you own
    a small fraction of that company.
  • In today's computer age, you won't actually get
    to see this document because your brokerage keeps
    these records electronically.

3
WHY SELL YOUR STOCK?
  • A company sells shares of its stock as one way to
    raise capital to fund the growth of its business.
  • The BEAUTY of the Deal is that a company does not
    have to pay the money back.

4
WHAT DETERMINES A STOCK PRICE?
  • A stock is worth what an investor is willing to
    pay for it
  • Supply and demand decide a stock's price.
  • Supply number of shares a company has issued to
    the public.
  • Demand investors' desires to buy shares from
    current owners.
  • Investors will purchase a stock if they think
    they will make a profit. (BUY LOW SELL HIGH!)

5
WHY OWN STOCK?
  • When the company makes money, so do you.
  • Owning a stock means you are a partial owner of
    the company, and you get voting rights in certain
    company issues
  • Over the long run, stocks have historically
    averaged about 10 annual returns
  • However, stocks offer no guarantee of any returns
    and can lose value, even in the long run
  • Investments in stocks can generate returns
    through dividends, even if the price stays the
    same

6
Stock Example
  • Lets say company X issues 10 shares of stock to
    raise Capital
  • You buy 1 share _at_ 10.00 p/s
  • Later this same year the company is doing very
    well. Lots of people want to invest in this CO.
    You are able to sell your share for 14.00 p/s.
  • Google Stock
  • 1-Oct-04, 132.58 21-Aug-07, 506.61

7
Why own stock?
  • GOOD INVESTMENT
  • If you invest wisely, over time you will make
    more money investing in the stock market then
    putting your money into a savings account

8
THE DOWNSIDE
  • When you buy shares of a stock, you get a full
    share of the risk of an operating business.
  • Owning stock does not guarantee that you make
    money

9
EXAMPLE
  • Theglobe.com
  • Heard it was a very hot Internet stock.
  • However, you didnt do too much research but
    bought 100 shares at over 100 per share.
  • A few months later, the share price is less than
    10.
  • Your hard-earned savings are now gone.
  • Some stocks may even go bankrupt and you could
    lose even more money.

10
WHY DO COMPANIES ISSUE STOCK?
  • Primary Reason to generate that will be
    used to
  • develop new products
  • buy more advanced equipment
  • pay for new buildings and inventories
  • hire more employees
  • provide for a merger or acquisition

11
DIVIDEND
  • A small reward a company pays you for owning
    shares of its stock.
  • The company takes a portion of its earnings,
    which it divides and distributes to shareholders.
  • SLOW GROWTH HIGH DIVIDENDS
  • HIGH GROWTH NO DIVIDENDS
  • EXAMPLE MICROSOFT
  • HIGH GROWTH COMPANY
  • DOESNT PAY DIVIDENDS
  • REINVESTS THOSE DIVIDENDS BACK INTO THE COMPANY
    (back)

12
STOCK SPLIT
  • When a public company issues more shares of stock
    to existing shareholders.
  • WHY? So that more investors can afford the stock
  • In a 2-for-1 stock split, a company issues
    another share for every one already sold.
  • EXAMPLEyou own 100 shares of IBM trading at
    120. They announce a 2-for-1 split and you now
    have 200 shares, and the share price is 60.

13
GROUP QUIZ
  • WHAT IS A STOCK?
  • LIST 2 REASONS WHY YOU WOULD WANT TO OWN STOCK
  • LIST ONE REASON WHY COMPANIES ISSUE STOCK
  • YOU OWN 5 SHARES OF DISNEY CO. at 100 PER SHARE.
    DISNEY ANNOUNCES A 2 FOR 1 STOCK SPLIT.
  • HOW MANY SHARES DO YOU NOW OWN?
  • HOW MUCH IS EACH SHARE NOW WORTH?

14
MEASURING STOCKS
  • DOW JONES INDUSTRIAL AVERAGE
  • Shows generally how well the market is going
  • Found by averaging the prices of 30 industrial
    blue-chip stocks trading in the New York Stock
    Exchange
  • Blue chip stock are the most valuable, from the
    largest companies

15
COMPANIES INCLUDED IN THE DJIA
  • Alcoa Inc 3.138
  • American Express 6.510
  • AtT 2.498
  • Boeing Co. 1.714
  • Caterpillar Inc. 1.877
  • Citigroup Inc. 2.553
  • Coca-Cola Co. 2.330
  • DuPont Co. 2.480
  • Eastman Kodak Co. 2.700
  • Exxon Mobil Corp. 3.809
  • General Electric Co. 6.543
  • General Motors Corp. 3.861
  • Home Depot Inc. 2.804
  • Honeywell International Inc. 2.250
  • Hewlett-Packard Co. 6.412
  • International Business Machines 5.218
  • Intel Corp. 5.885
  • International Paper Co. 1.785
  • J.P. Morgan Co. 5.766
  • Johnson Johnson 3.769
  • McDonalds Corp. 1.592
  • Merck Co. 2.930
  • Microsoft Corp. 4.672
  • Minnesota Mining and Manf. 4.042
  • Philip Morris Cos. 0.982
  • Procter Gamble Co. 2.866
  • SBC Communications Inc. 2082
  • United Technologies Corp. 2.688
  • Wal-Mart Stores Inc. 2.517
  • Walt Disney Co. 1.711

16
STANDARD AND POORS 500 INDEX
  • A.K.A. SP500
  • A well-known, value-rated index of 500 major US
    companies 400 industrial firms, 20
    transportation firms, 40 utilities firms, and 40
    financial firms
  • Like the Dow Jones Industrial Average, shows how
    the market is doing by averaging the stock prices
    of these 500 companies

17
Where are stocks traded?
  • 2 major U.S. markets
  • NEW YORK STOCK EXCHANGE (NYSE)
  • NASDAQ STOCK EXCHANGE

18
HOW ARE STOCKS BOUGHT and sold?
  • BUYERS
  • Do research on company and price
  • Place an order (either online or with broker)for
    x amount of shares for x amount of
  • Order is sent to NYSE floor
  • Transaction occurs
  • Order confirmation sent
  • Pay for stock and stockbroker commission
  • SELLERS
  • Decide to sell x amount of shares for x amount of
  • Place a sell order (either online or with broker)
  • Sell order is sent to NYSE floor
  • Transaction occurs
  • Sell confirmation sent
  • Check sent to seller minus stockbroker commission

19
portfolio
  • A stock portfolio is a collection of stocks that
    an investor owns at a particular point in time.
  • Information contained in a portfolio
  • Parent company name http//www.google.com/
  • (example Oreo cookies owned by Nabisco which
    is now owned by Kraft Foods)
  • Stock Quote (price that the stock is trading at)
  • Stock exchange symbol http//finance.yahoo.com

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