Stock as an Investment

Capital Appreciation: stock may become more valuable and the holder can buy low and sell high

Dividend: investor gets a share of the profits returned in cash in proportion to his or her ownership

Types of Stocks

Income Stock: Associated with profitable companies that offer steady dividends

Growth Stock: People plan to keep the stock for a long time and expect a large capital appreciation

Preferred Stock: Gives the investor a fixed share of the profits before common shares

Stockbroker: Buys and sells stock for a living

Usually they work for a brokerage house that is a member of several stock exchanges

They have a “seat” on the exchange so the company can conduct transactions through that market

For every transaction made, the investor is charged a percentage (called a commission)

Usually from 1-5% of each transaction or trade

If you decide to buy 1,000 shares of IBM, you will conduct a transaction on the New York Stock Exchange

You will be buying stock that has usually been issued and held by several other investors

Transactions take place on a secondary market because they have previously been issued

Markets like NYSE have companies offer stock for the first time- known as the Initial Public Offering (IPO)

Investment bankers decide how much a company’s stock should sell for and how many shares should be offered

Initial offerings are sold to larger investment firms on a primary market

Once you own a piece of a company (stock), you should keep an eye on how the company is performing

They will send you a copy of their annual report

This report will have details about the profits, costs, and debts

52 Week High- The highest price paid for the stock in the last year (the last 52 weeks)

52 Week Low- The lowest price paid for the stock in the last year (the last 52 weeks)

Ticker Symbol- the letters that stand for the company on the exchange Helpful hint: four letters is for the

NASDAQ, fewer than four letters is for the NYSE

Yield- The percentage return on the investment. Divide the annual dividend by the current price of the stock.

Price/Earnings Ratio- the current stock price divided by the company’s earnings per share. The lower the number, the better the value.

Volume- the amount of shares that traded hands that day

High- The highest price for stock that day

Low- The lowest price for stock that day

Last- The last price offered per share that day

Change- the net change from the previous day’s closing price (you will see a + or -, or maybe an arrow that points up or down beside the number)

Main National Markets

New York Stock Exchange (NYSE)

Most important market in the U.S. More traditional companies list their

stock here

American Stock Exchange (AMEX)

Caters to smaller, industrial companies

Merged with NASDAQ but are still two separate markets

National Association of Securities Dealers Automated Quotation System (NASDAQ)

Smaller, unproven companies that want their stock offered nationally will often go to this market

Also brings in newer, high-tech firms (Intel and Microsoft)