Introduction to StocksBasics of Investing I

Spring 2014Accounting 101 `

K. Robinson

What is a stock?

Common stock

Gives you a “share” of ownership of a publicly traded company

Stock ownership

– Voting rights

– Claim to assets (behind debt holders) and earnings

– Potentially entitled to dividends

What is a stock? Ticker symbols

– Set of letters that represent a security traded on an exchange

– Ex. MSFT, GS, AAPL, MA, BUD, LUV Stock quotes

– List of prices for a stock at a particular point during the trading day

Stock tickers– What do those green and red numbers

mean?

Basic Stock Quote

More Stock Quotes

Different Types of Stock Preferred Stock

– No voting rights to company issues– Issued fixed dividends forever – main form of return

Common Stock– Majority of stock we see and hear about in the news– Ownership of the company– Entitled to portion of the earnings– Earn returns mainly through capital gains

What are capital gains?– Increase in asset value relative to the purchases

price– Not realized until asset is actually sold– Example.

Stocks vs. Bonds

Stocks are equity– Generally considered riskier– Quite possible to lose a significant

portion, if not all, of your money– Potential for high returns

Bonds are debt– Lower and usually fixed return– Higher claim than stockholders

What does this mean?

What Can Cause Stock Prices to Change?

EASY! Supply and Demand!But…what affects supply / demand of a

stock?

What Can Cause Stock Prices to Change?

Earnings & growth expectations

Positive / negative news

Economy sentiment

Investor sentiments & attitudes

Two Markets Primary Market – market in which

investors have first opportunity to buy newly issued shares– Initial Public Offering (IPO)

First time that company offers its shares to public markets (securities bought directly from company)

Where private companies become public

Secondary Market – investors trade already-issued shares of companies with each other– Ie. The stock market– Trading of a company’s stock DOES NOT

DIRECTLY involve the company financially

How Stocks Are Traded

Major exchanges – Lists stocks (and other securities),

sets policies for how stocks are traded

New York Stock Exchange (NYSE) American Stock Exchange (AMEX) National Association of Securities

Dealers Automated Quotation

Only “publicly traded companies” are listed

Markets Indices S&P 500

– 500 stocks chosen by Standard & Poor to represent US stock market

NASDAQ Composite--With approximately 3,700 companies and corporations, it has more trading volume than any other stock exchange in the world, many of which are technology and electronics

Dow Jones Industrial Average– 30 most significant stocks traded

Stocks Markets & Animals

Bull Market– When everything in the market is going

great and stocks are generally heading upwards

Bear Market– When everything is NOT GOOD and

stocks are generally headed downward

NOTE: Nothing lasts forever! Good times and bad times will end at some point

http://www.investopedia.com/university/stocks/stocks7.asp

Brokerages Need a medium to

trade through – this is where brokerages come in

Criteria– Full service vs. discount– Fees (commission)– Services / tools– Minimum balance

Opening an Account Not a hard process- most of it just

some paperwork and mail– Sign-up online and download forms– Mail checks, forms, and copy of ID– Accounts created within a couple of days

What you will need: a computer, starting capital, and investing know-how

Brokerages Some links for brokerage comparisons

– Find something that works for what YOU need

– No one broker that is best for all investors

http://www.investingonline.org/gso/broker_ratings.html

http://www.consumersearch.com/www/internet/online-brokers/

http://www.stockbrokerguide.com/

http://online-stock-trading-review.toptenreviews.com/

Different types of Orders Market Order

– Order to buy/sell at any given time.

Limit Order

Order executes to buy / sell at specified price of better (lower). Limit orders usually cost more, but useful for getting specified price

Stop Order

Order executes when the price surpasses a particular point, which helps buy or sell at a particular price. Limiting loss or locking profits

Basic Idea Behind Investing in Stocks

Buy your stocks when the prices are low.

Sell your stocks when the prices are high.