FIN 101: week 12
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This 4 page Class Notes was uploaded by Rachel Rusnak on Wednesday May 18, 2016. The Class Notes belongs to FIN 101 at Ball State University taught by Professor Boylan in Summer 2015. Since its upload, it has received 12 views. For similar materials see Personal Finance for Fiscal Wellness in Finance at Ball State University.
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Date Created: 05/18/16
Personal Finance 101 Professor Boylan 1 Chapter 12: Investing in Stock. ***on the test*** 1. Why Buy Stocks? a. Paper money = decrease in value. b. Gold = doesn’t increase or decrease. 2. BIG Difference. a. Good Company Good Investment. 3. The Future is Bright? a. Now= buy at current trading price. b. Soon= dividends. c. Later= sell at current trading price. 4. Where Do Stocks Show Up? Balance sheet +Assets Investor –Liabilities =Owner’s Equity Investee (or New Worth) 5. What Makes a Good Investment? a. What makes a good investment? i. Limited supply (availability). ii. Increased demand. b. What makes a bad investment? i. Increased supply (availability). ii. Decreased demand. 6. Different Ways to Invest. a. Common stock (equities). b. Bonds (liabilities). c. Preferred stock and convertibles (equities). d. Mutual funds (assets) and… e. Exchange traded funds (stocks). f. Real estate (assets). g. Cash (assets). h. Art (assets). i. Annuity (assets). 7. What Determines Stock Price? a. Financials. b. Management. c. National economy. d. Industry. e. Speculation. i. More losers= less winner. 8. What Does Price Represent? a. The company and world performance in 6 months… yes today’s stock prices represent what the company is expected to look like in 6 months. 9. Investing in Common Stock. a. Each share represents equity or part ownership in the company. i. Investor participation in firm’s profits. ii. Stock ownership is residual. 1. Firm’s obligation (liabilities) paid first. 10. Voting Rights. a. Usually one share = one vote. b. Most small shareholders assign their votes to a proxy. Personal Finance 101 Professor Boylan 2 i. Giving stockholder’s voting rights to another person. ii. Less important to small shareholders. 11. Basics of Stock Investing. a. Fundamentals of stock investing. i. Buy-and-Hold investors. ii. Active trading. b. Initial Public Offering (first sale). c. How market price is determined. 12. Stock Markets and Indexes. a. #1 - The New York Stock Exchange (bigger cost). i. The Dow Jones Industrial Average (Dow). ii. The S&P 500. b. #2 – The NASDAQ (small companies). i. The Nasdaq composite. c. #3 – Tokyo Stock Exchange. d. #4 – London Stock Exchange. e. #5 – Shanghai Stock Exchange. 13. Types of Common Stocks. a. Growth. i. Above average growth rates in operations and earnings. ii. Usually low or no dividends. iii. May experience more price volatility. b. Tech. i. Companies in technology sector. ii. Mostly growth or speculative stocks. 1. Some are blue-chip stocks. c. Income. i. Fairly stable earnings stream. ii. Pay high dividends. iii. Attractive to those seeking current income. d. Speculative. i. High risk companies. ii. Company, products, or industry may be new or unproven. iii. Stock prices may be highly volatile. e. Cyclical. i. Stock prices move in same direction as business cycle. ii. Often found in basic industries. iii. Have a positive Beta. f. Defensive. i. Stock prices are stable in economic downturns. ii. Proven basic needs and consumer goods. iii. Betas are low or negative. g. Mid-Cap. i. Market capitalization of $2- $10 billion. ii. Greater returns than higher firms. iii. Less volatile than smaller caps. h. Small Cap. i. Market capitalization of $2 billion or less. ii. Possibility of higher returns. iii. Prices can be volatile due to high risk exposure. 14. Looking Back/ predicting Future. a. Growth investors. i. Young people. b. Income investors. i. Card shark? Personal Finance 101 Professor Boylan 3 1. Old people. c. Beta. i. Measures the cost of a share against the market. 1 = +$1 +$1 2 = +$1 +$2 -1 = +$1 -$1 -$1 +$1 d. P/E Ratio. i. Compares the stock market price of a share of stocks to the earing of that share. ii. How fast this company moves with the market. 15. How to Pick a Good Stock? a. Is the stock market in general in a growing mode? Or should I go to another investment company? b. What industries are strong? c. What companies are strong? i. Do you like management? ii.Are they profitable (financials)? iii. Are they growing? iv. How did you hear of them? v. Are you willing to buy their products (good equity for price)? vi. Are they in India (red flag)? d. What companies have a low P/E Ratio? e. What companies have high Beta? f. Are you I/E (do you do your research or expecting someone else to get you rich)? 16. A Money Back Guarantee? a. Dividends are: i. Money given to shareholders. ii. Determined by firm’s board of directors. iii. Usually paid quarterly. 17. Buying and Selling Stock. a. Avoiding mistakes. b. Stopping losses/ protecting profits. 18. Employee Stock Options. a. The basics. b. Nonqualified. c. Qualifies or incentive. d. Exercising options. i. Cash. ii. Cashless. iii. Swap stock. 80% of people don’t take free money from their company. 19. Penny Stock. a. Penny stocks are sold at such low prices that they entice many investors, particularly first-time investors. b. These low prices allow novices to explore the markets, without risking an extensive amount of money. Furthermore, if the stocks were to dip in price, the investor will not have lost excessive amounts of money. c. But remember: i. If a $0.10 (dime) stock drops to $0.05 (nickel) that represents a 50% loss. 20. Where Can I Trade? a. Full Service Investor. b. Discount Broker. Personal Finance 101 Professor Boylan 4 c. Online. 21. Investing Lessons from Warren Buffett. a. Stock picking isn’t a hobby. b. Invest unemotionally. c. Ignore modern financial theory. d. Invest in what you understand. e. Be cheap. f. Be patient. g. Volatility is your friend. h. Think for yourself. 22. How to Pick Good Stocks? a. Identify the top sectors and industry groups. b. Isolate the highest rated companies. c. Select the strongest stock in the top industry groups.
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