Introduction to Investing The Basics of Investing

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  • Slide 1
  • Introduction to Investing The Basics of Investing
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  • 2 Goals of a Company 1) Maximize Profits (each year) 2) Grow Profits (over time) have the best stock performance Companies that grow PROFITS the fastest
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  • Price of a Share of Stock Determined by Supply & Demand Stocks are constantly searching for a NEW equilibrium macroeconomic & microeconomic factors affect stock prices Ford Motor Company current events
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  • Building a 100,000 Portfolio How many shares? Depends on how many dollars you want to invest What types of companies? Many sectors to choose from Do I spend all of my $100,000 No more than $20,000 in one stock!
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  • Why Invest Money? You must earn more than the rate of inflation to raise wealth Stocks & Bonds are common investment options Bonds: a loan to a Govt or business where you earn interest Stocks: You become part owner in a company Your Money U.S. Govt 5-Year Bond $1,000 You get 2% interest per year $20 per year Plus $1,000 in 5 years
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  • Stocks = long term investment (5-years or longer) Bonds = medium term investment ( 1-3 years) Bank CDs = short term investment (30 days to 2 years) The longer the holding period- ---the more risk you should take! Average return per year 1926 - 2000 3 Primary Asset Classes
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  • The Power of Compounding
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  • I need MONEY! How do YOU borrow Money? How do COMPANIES borrow money?
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  • What is a share of stock? It is ownership of a small piece of the company.
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  • Why Companies Issue Stock To raise money to expand/ run business Investment Banks help companies issue stock IPO = initial public offering When a new company sells stock for the 1 st time
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  • 1.The Primary market: Company sells shares of stock to investors --Example: PLX Technology Initial Public Offering (IPO) 2. The Secondary Market Investors buy & sell shares to other investors Two Stages of Selling Shares
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  • Key Stock Indices S&P 500 Index Largest 500 companies by $ value Dow Jones 30 very large American companies Nasdaq primarily technology stocks WHY INDICES: There are over 5,000 stocks! Indices give the average Performance of the overall market
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  • COMPANY NAME 3M Co. Alcoa Inc. Altria Group Inc. American Express Co. American International Group Inc. AT&T Inc. Boeing Co. Caterpillar Inc. Citigroup Inc. Coca-Cola Co. E.I. DuPont de Nemours & Co. Exxon Mobil Corp. General Electric Co. General Motors Corp. Hewlett-Packard Co. Home Depot Inc. Honeywell International Inc. Intel Corp. International Business Machines Corp. Johnson & Johnson JPMorgan Chase & Co. McDonald's Corp. Merck & Co. Inc. Microsoft Corp. Pfizer Inc. Procter & Gamble Co. United Technologies Corp. Verizon Communications Inc. Wal-Mart Stores Inc. Walt Disney Co. Stocks in Dow Jones Index Stocks in Dow Jones Index
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  • Sectors of Stock Market Technology Transportation Retail Financials Energy Health Care Industry Type
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  • Market Capitalization Dollar value of a company = Current price per share of companys stock X number of shares the company has issued Large Cap --over $10 Billion Mid Cap --$2-10 Billion Small Cap --$300 Million-$2 Billion
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  • Delta Air Lines Amazon Cheesecake Factory
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  • Recent Stock Market History Stock market hit a high in March of 2000 3 years of negative returns followed [2000,2001,2002] 2003 SP500 +28.6% 2004 SP500+10.8% 2005 SP500+4.9% 2006 SP500+15.7% 2007 SP500+5.5% 2008-37.0% 2009 +26.0% 2010 +15.0% 2011+0.0
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  • Top 10 things to know about Stocks Reading: