2. Welcome to the Stock Market
(see pages 3-4 for examples)





The stock market is like a flea market where
people buy & sell pieces of paper called stock.
There are owners of the corporations who
want to raise money to hire more employees,
build factories or offices.
They raise money by issuing shares of stock in
their corporation.
On the other side, there are people like us who
buy shares of stock in the corporation.
The place both sides meet is the stock
market.

3. Types of Investments (see pages 2023 for examples)

Mutual funds: An investment company pools investors’
money & uses it to invest in an assortment of stocks,
bonds or cash.

Investment: the action or process of investing money for
profit or material result.
 Stock: represents ownership or shares in a
corporation.

Bond
 An IOU
 You are lending money to a corporation and are
promised that you will be paid back in full with
interest.
 Bills: Have the shortest maturity dates. 1-12 months.
 Notes: 1-10 years
 Bonds: 10+ years

4. (see pages 4-5 for examples)
Investor/shareholder: When you
own a share of stock. The more shares
you own, the more control you have in
the company.
 Stock certificate: Written proof that
you have invested in a company

 You will have to request a copy of the stock
certificate from your broker.

Capital gains: The profits you make
from a stock

5. Types of Investors (See pages 8-10 for
examples)




Retail Investors: Individual investors who
buy and sell securities for their personal
account, and not for another company or
organization.
Professional Investor: A category of
investor under the financial services
regulations, and one who would be transacting
similar types of investment to the adviser.
Short term trader: Goal is to take advantage
of the short term movements in a stock or the
market.
Professional trader: use other people’s
money to make investments or trades on
behalf of clients.

6. Measuring how much you
make: (See pages 13-14 for examples)
 Wall street uses a system of points that
represent dollars.
 Ex: If your stock went up from $5/share to
$10/share , your stock went up 5 points.
 Ex: If you own 100 shares of a stock and it
goes up 1 point, you made $100. If it went up
5 points, you made $500.

7. How to Classify Stocks (see pages 2935 for examples)
Stock sector: group of companies that
belong to the same industry and provide
the same product or service
 Ex: Airlines, retail. automobiles, etc.
 Income stocks: Include shares of
corporations that give money back to
shareholders in the form of dividends.
 Value stocks: Stocks of profitable
companies that are selling at a reasonable
price compared with their value.


8. (See pages 31-35 for examples)
Growth stocks: Stocks of companies
that consistently earn lot of money and
are expected to grow faster than the
competition.
 Penny Stocks: Stocks that usually sell
for less than a dollar.

 Small-cap: Market Cap of 2.5 billion or less.
Normally trades are under $10.
 Microcap: Markets of 500 million or less.
Normally trades are under $1.

9. Fun things you can do (with
stocks) (see pages 37-39 for examples)



Diversification: Important not to bet your entire
portfolio on one or two stocks.
Once you have diversified, you have to decide what
percentage of your money you want to allocate to
each investment.
Compounding: Reinvesting any money you
make on your savings or investments. The longer
you do this, the more money you will make.

10. Understanding Stock Prices (see
pages 49-53 for examples)
Stock quote: current price of the stock.
Bid price: The price you will receive if you
own the stock and want to sell it.
 Ask price: The price you pay if you place a
market order.
 The spread: The difference between the
big and ask price.


Outstanding shares: The total
number of shares a company has issued.
 Float: Shares that are owned by outside
investors


11. Investment Strategies (see pages 6976 for examples)
Buy and hold strategy(averaging
down): If you buy a stock in a
fundamentally sound company and hold
it for a long term you will profit.
 Buy on the dip strategy: When a
stock you like goes down in price, and
you think the decline is temporary, you
buy more shares.
 Bottom Fishing Strategy: You look
for stocks that are so low they have
seemed to hit bottom.


12. 




Dollar-cost averaging: You buy stocks regularly
and systematically. You invest a set amount of money
each set period of time.
Value investing: Use fundamental analysis to pick
good-quality stocks that are a bargain compared with
their actual worth. (looking for stocks on sale)
Growth Investing: Use fundamental analysis to find
stocks that are growing faster than the economy or
earning more than other stocks in the same industry.
Momentum Investing: Growth investors who look
for stocks that are ready to make explosive moves
upward.
Contrarian Investing: Use fundamental analysis to
find high-quality companies with low P/Es that other
investors abandoned.

13. Trading Strategies (see pages 77-80 for
examples)




Day Trading: Extreme trading strategy
that involves constantly moving into and
out of stocks.
Market timing: You predict in advance
where a stock or the market is headed and
make your move before the market does.
Short the rallies: When the market of
your stock goes up a lot, you sell the stock
at a lower price.
Exchange traded funds: An
investment product that is similar to a
mutual fund, but trades like a stock.

14. Fundamental Analysis (see pages
89-95 for examples)
Fundamental analysis: The study of the
underlying data that affect a corporation.
 Balance sheet: report of the financial
condition of a business.
 Key things to remember:

 Learn everything you can about the industry
 Identity the leading company (choose a
company that is stronger & more profitable than
their competition)
 Talk to managers
 Watch company insiders closely

15. Fundamental Analysis: Tools &
Tactics (see pages 97-99 for examples)
Income statement: Can be used to see
how much money a company is making.
Contains a lot of information such as the
companies sales, operating expenses
and earnings.
 Stock analysts: people that are paid to
independently research corporations
and make buy or sell recommendations
on their stocks. They make estimates on
companies future earnings.


16. Introduction to Technical
Analysis. (see pages 107-109 for examples)
Technical analysis: Technical
analysis of stocks and trends has been
used by serious traders for decades.
Although it does not guarantee success
and is not 100% accurate, it is still one of
the two key methods of analyzing stock
prices, along with fundamental analysis
 Stock chart: provide important clues
as to when people are buying or selling.
 Line chart: plots the closing prices of a
stock over a specific period.


17. Technical Analysis: Tools &
Tactics (see pages 131-136 for examples)
Volume: how many shares changed hands
during a given period. Fuel that drives
stock prices higher or lower.
 Moving average: Average price of the
stock for a specified period (hours, days,
weeks etc.)
 On-balance volume: measures how
much money is flowing into or out of
security.
 Relative Strength Indicator(RSI):
measures the weakness of a stock when its
compared to itself over a specified period.


18. Sentiment Analysis (see pages 141146 for examples)
Studying psychological clues to help you
determine where the market is headed.
 The Chicago Board Options Exchange
Volatility Index (VIX): an index that
measures the volatility of the US stock
market by tracking S&P 100 option
contracts.
 Media: People use the media when
trading. By the time something is reported
on TV, you should do the opposite.


19. Mutual Fund Redemptions: Individual
investors are selling their mutual funds.
 Capitulation: What happens when
everyone in the market panics and
immediately sells all of their stock, which
causes the market to crash.
 Pump and Dump: When a company is
paid, with money or shares, to promote a
stock. It is legal as long as they disclose it in
their fine print.
 Insider trading:

 Legal: Done by company employees.
 Illegal: When company employees buy and sell
stocks based on information that is not public
knowledge.

20. What makes stocks go up &
down (see pages 149-155 for examples)
Federal Reserve System: When the Fed
lowers interest rates, it means that it will
be cheaper for people to borrow money.
This often makes the stock market go up.
 Inflation: Refers to how much the prices
of goods and service that you buy go up
each year.
 Deflation: An economic condition in
which the supply of money and credit is
reduced.
 Politics: Actions of the president and
Congress affect the stock market (Speeches,
higher taxes, new laws)


21. Where to buy stocks (see pages 55-60
for examples)

Full service brokerage firms:
 Provide a huge variety of financial and
investment products.
 Offer investment advice, research, banking
services and the ability to buy and sell
stocks, bond, mutual funds, and fixed
income products.
Stockbrokers: Paid to advise you what
stocks to buy or sell & personally fill the
order.

22. Online investing/trading: You buy and
sell online from your own computer.
 Types of orders you can place with a
brokerage firm:

 Market order: The fastest and easiest type of
order. The people selling it to you know that it is
the best price for them.
 Limit order: More complicated but allows you
to negotiate the price. You decide yourself the
price which you want to buy or sell the stock.
 Stop-loss order: Instructs your broker to sell
the stock at a price you specify.
 Trailing stop order: top order that moves
along with a favorable movement in a security.