STOCKS A share of stock shows ownership in a corporation. One share means you own one small portion or fraction of a company. A share of stock is only worth what someone is willing to pay for it. Things that affect the price of stock are the economy, the seasons (spring, summer, fall, winter), news, and emotions.
STOCKS Stocks are issued by businesses that are legally formed as corporations. There are 2 types of corporations: Publicly Owned--companies in which anyone can own shares of the stock. These are the stocks traded at stock exchanges. Privately Owned--companies in which only 1 person, a small group, a family owns all of the stock.
BONDS A bond is a certificate showing that the owner has LOANED money to the bond issuer. Bonds are issued by governmental bodies and by companies that need the borrowed money to make improvements. Bonds are safer than stocks; however, a bond owner can loose money if the governmental body or company goes bankrupt. Bond owners hold the bonds for a period of time and then cash them in for the original principle and interest.
STOCK EXCHANGES There are several stock exchanges in the U.S. The most famous are the New York Stock Exchange (NYSE), the AMEX (American Stock Exchange), and the NASDAQ (National Association of Security Dealers Automated Quotations)
STOCK PURCHASES When a person decides to buy (or sell stock), he can call a stockbroker at a brokerage house, set up an account, deposit money, discuss his investing strategies with the broker, and then listen to the broker’s advice about what to invest in. When he decides to buy or sell, he tells the broker he wants to order (or sell) stock of a certain company and the number of shares needed. The stockbroker will place the order with someone on the floor of a stock exchange asking for the price you requested.
The stockbroker makes a commission of 20-30% on your order when you buy and when you sell. Stockbrokers usually hold the stock certificates for you. TYPES OF ORDERS Market Order -a stock order that gets you the best price at the time of the order Limit Order -a stock order that costs more. You can request that the order not go through until the stock falls to a lower price that you want to pay. Stop Order -a stock order that costs more. You can protect yourself from loosing a lot of money with this type. You tell your broker to automatically sell your shares in a stock if it falls below a certain price. WAYS TO MAKE MONEY WITH STOCK Selling Long : These stock orders allow you to make money when a stock goes up in value. Selling Short : This is a type of stock order that you can transact when you think a stock will decline in value. You can make money if it goes down; lose money if it goes up in value. (skit)
STOCK TICKER SYMBOLS When you place an order for stock in a company, you may need to know the company’s stock ticker symbol. This symbol is made of of 1 to 4 or 5 letters. Examples: Company Ticker Symbol Microsoft MSFT Exxon XOM Nike NKE Southwest Airlines LUV
INTERNET STOCK BROKERAGE HOUSES Some of the more well-known Internet Stock Brokerage Houses are E-Trade…………………………………….. etrade.com Ameritrade…………………………………. ameritrade.com Datek……………………………………….. datek.com Sharebuilder.com………………………….. sharebuilder.com
COMPANY MINIMUM COMMISSION INVESTMENT PER TRADE (market orders) E-Trade $1,000 $19.95 Ameritrade $2,000 $ 8.00 Datek ????? $ 9.95 Sharebuilder.com ????? $ 4.00 or $12.00 for unlimited orders
THE COSTS OF BUYING STOCK Let’s say you want to buy 100 shares of Microsoft through e-trade. One share of Microsoft is currently values at $50.00. What will this cost you? 100 X $50 = $5,000 plus $19.95 commission When you go to sell the stock, you will also pay the $19.95 commission fee. If you did the same trade at ameritrade.com, it would cost $8.00 in commission fees when you buy and again when you sell.
BULLS AND BEARS A bull market is a description of the stock market when it is generally charging ahead and going up in value over a period of time. This is a good market for investors. Remember, bulls CHARGE AHEAD! A bear market is a description of the stock market when it is generally going down in value over a period of time. This is a bad market for investors. Remember, bears HIBERNATE!
MAKING MONEY WITH STOCKS The main ways to make money through stock purchases: (1) The stock rises in value over time and then you sell it for more than you paid for it. (Selling long) (2) The company issues a dividend to stockholders. A dividend is issued when the company makes a profit and decides to share some of this with the stockholders. Each share is given a dividend. It may only be 10 cents per share, but if you own 1,000 shares, you would receive a check for $100 every now and then. DRIPS —Dividend Reinvestment Plans—allow you to take dividends and purchase additional stock in the same company. (3) Another way that was previously described… Selling Short —you can make money if the stock goes down in value.
STOCK SPLITS What could you better afford? A share of Microsoft worth $50 or a share of Microsoft worth $100. More people can buy shares at the lower price. A stock split comes about when the price is too high and the company decides to split the stocks and give the current stockholders a 2-for-1 stock split. Sometimes they give a 3-for-1 stock split. If you owned 10 shares of Microsoft and each share was worth $100, this means your investment is worth $1,000. If the stock was split 2-for-1, you would receive 2 stocks in Microsoft for each one you own and the value is cut in half. So you would then own 20 shares of Microsoft and each share would be worth $50. Your investment is still worth $1,000.
Diversified Stock Portfolio Sectors —classifications of different kinds of stocks. Some sectors are utilities, technology, travel, finance, durable goods, telecommunications, etc. Portfolio —a collection of something A good investor will buy stocks in many sectors instead of just one or two. That way if one sector, like technology, goes down in value, the investor will not loose all his/her money. When a person invests in many sectors to protect him/herself, he/she is said to have a “diversified portfolio” of stocks.
MUTUAL FUNDS When you do not know much about stocks, you might want to invest in a Mutual Fund. The money you invest is pooled with investors similar to yourself. A professional person manages the money and invests all of the pooled money in to stocks. This person watches the stock daily and makes decisions on your behalf.