STOCKS
Definition
--Ownership interest in a corporation
STOCK FACTS
• Stocks may help you achieve longterm financial goals • Stock prices rise and fall • Good management reduces risk
STOCK FACTS
• Sold in shares • Shares = individual units of ownership • Shareholders—investors who purchase stock • Shareholders—part owners • Shareholders—may make $ • Shareholders—may lose $
HOW ARE STOCKS TRADED?
• Initial public offering—investors buy directly from the company • Later—investors usually buy from owners who want to sell stock • Stock Market—organized trading of stock
WHERE ARE STOCKS TRADED?
• Stock Exchange—trading floor • NYSE—New York Stock Exchange (oldest stock exchange; largest and wealthiest companies) • AMEX—American Stock Exchange (second oldest stock exchange; small and medium-sized companies) **requirements must be met to be listed on an exchange
STOCK FACTS
• Over-the-counter stocks—not listed on any stock exchange • Traded through phone and computer • Nasdaq—largest electronic network; lists stocks
STOCK MARKET REGULATION
• Securities and Exchange Commission
--requires disclosure of accurate and honest information --brings lawsuits against fraudulent companies --oversees activities of the exchanges, OTC stocks, investment advisors, and others involved in buying/selling stock
RETURNS ON STOCKS
• DIVIDENDS
payment to shareholders that represents a portion of the company’s net profits **usually paid 4 x yr.
• CAPITAL GAINS AND LOSSES capital gain--buy low/sell high
capital loss—sell lower than bought
STOCKBROKER
• Individual or firm that will buy and sell stock for clients --full service brokers-buy/sell, advise
--discount brokers-basic service; cost much less On-line brokers help find info for clients.
OTHER WAYS TO BUY STOCK
• 401(k) Plan • ESOP (employee stock option program) • Direct stock plan (buy directly from company)
RISKS OF OWNING STOCK
• • • • Company’s Health Industry Trends Economic Factors National and World Events
TRACKING THE STOCK MARKET
• INDEXES—way to measure overall price changes in the stock market
– Nasdaq Composite Index—tracks 5,000 domestic stocks – Dow Jones Industrial Average—tracks 30 large, well-known companies (financial services, technology, retail, entertainment, and consumer goods)
TYPES OF STOCK/RISKS
• COMMON STOCK • PREFERRED STOCK – Voting rights – Dividends vary – Risk varies – Return varies
– No voting rights – Dividends fixed – Less risk – Fixed return
MINIMIZE THE RISK
• • • • Long-term investment Diversified portfolio Research and monitor Maintain discipline
Assignment
• PAGE 350 QUESTIONS 1, 2, 10