Unit 4: Investments Notes
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  • 1. Unit 4: Guidelines for Investors Mr. Elsesser Wall Street I
  • 2. Who is making Investments? Investors: Those who buy stocks for a safe, steady return in the form of dividends and/or capital gains. Speculators: Those who tend to take risks with their investments in the hope of making a big and quick return on their money  Ex. Investing in an unknown new corporation.
  • 3. H Income Stock: 1) Stocks of companies whose dividends are relatively large and stable.a Growth Stocks: 1) Stocks of corporations that retain most of their earnings.s Emerging Stocks: Refer to new corporation’s stocks.
  • 4. h Blue Chip Stocks: 1) Stocks of corporations that have been profitable throughout the years and that have a history of paying dividends at regular intervals. 2) They have a national reputation for quality and reliability. 3) They have the ability to operate profitably in good and bad times.
  • 5. h Cyclical Stocks: 1) Stocks of corporations that tend to parallel the cycles or swings of the economy.  Ex. Housing, automobile, and airline industries. Economy Cyclical Stocks Economy Cyclical Stocks
  • 6. Defensive or Staple Stocks1) Market value doesn’t get hurt as badly when economy goes down.  Ex. Food, pharmaceutical companies.
  • 7. è Penny Stocks:  Stocks whose prices are less that $1  Considered very risky  Part of OTC – can be found on pink sheets  Pink Sheets:  listing of stocks printed on pink paper and published every day.
  • 8. Stock Market Psychologist– An investor who understands the emotional highs and lows of the stock market.  Ex. Rumors, opinions, fads can all send the market up or down. Dollar Cost Averaging – Investment strategy in which aninvestor buys the same stock with the same amount of money at regular intervals for a long period of time.
  • 9. Stock Dividend: A dividend that is paid as additional stock rather than as cash. Stock Split: The lowering of the stock price by issuing more shares to current shareholders.  Ex. 2 for 1 You had 1 share at $100 Now, you have 2 shares at $50Possible reason for a stock split:Lower stock price will attract moreinvestors.
  • 10. Institutional Buying:  Is the purchasing of a large block of stocks by an institution rather than by an individual investor.  Ex. Insurance companies, banks, mutual funds.  Buying and selling stocks in such large blocks can dramatically affect the price of stocks.  Ex. Cause of the Oct. 1987 crash; DJIA plunged 508 points in a matter of hours
  • 11. Buying on Margin:  Investor purchases stocks with money borrowed from a broker.  Up to 50% off purchase price.Margin Account: Minimum $2,000 account opened with broker in order to buy on margin.  Used as collateral.Leverage:  Borrowing money to make money
  • 12.  Crash of ’29:  Stock market crash that was brought on, in part, by no set requirements for buying on margin. Crash of ’87:  Stock market crash that was brought on, in part, by large institutional buying.