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
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
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!
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
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
The Power of Compounding
I need MONEY! How do YOU borrow Money? How do COMPANIES borrow money?
What is a share of stock? It is ownership of a small piece of the company.
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
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
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
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
Sectors of Stock Market Technology Transportation Retail Financials Energy Health Care Industry Type
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
Delta Air Lines Amazon Cheesecake Factory
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