Unit 4: Guidelines for Investors Mr. Elsesser Wall Street I
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.
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.
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.
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
Defensive or Staple Stocks1) Market value doesn’t get hurt as badly when economy goes down. Ex. Food, pharmaceutical companies.
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.
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.
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.
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
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
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.