National Council of Economic Education

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  • 1. National Council of Economic Education Carolyn Shirk Vice President 849 Tame Deer Drive Winfield, PA 17889 Cell: 570-975-5149 570-374-9467
  • 2. Investment Basics
  • 3. Stock Market IQ Quiz Investment Basics
  • 4.
    • True or False
    • Stocks are items found in the storeroom of a grocery store.
    • Only rich people invest in the stock market.
    • Most stocks on the stock market are sold by the United States Government.
    • If the stock market goes up 30 percent one year, it will fall by 30 percent in the next year.
    Investment Basics
  • 5.
    • Any stock that goes up in price must eventually come back down.
    • Bears, Bulls, and Pigs are found in the stock market.
    • Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U.S. government.
    • Stock markets are open on business days around the clock, around the world.
    Investment Basics
  • 6.
    • Sometimes companies buy their own stocks on the stock market.
    • It is hard to buy a good stock today because all the good ones have already been purchased.
    • Buying stocks is a sure way to make money.
    • Corporations sell new issues of stock on the New York Stock Exchange.
    Investment Basics
  • 7.
    • “ Insider” stock trading means that trading stocks takes place inside a building.
    • People can buy stocks on the internet.
    • When the stock market goes up, it causes the economy to grow.
    • From Learning from the Market , © National Council on Economic Education, New York, NY
    Investment Basics
  • 8.
    • Insured Savings Accounts
    • Savings Bonds
    • Certificates of Deposit
    • Treasury Bonds
    • Corporate Bonds
    • Mutual Funds
    • Stocks
    • Collectibles
    • Commodities
    Different Types of Investments: Investment Basics
  • 9. The RISK to RETURN Relationship: The RISKIER the Investment - The HIGHER the Return Investment Basics
  • 10. The Difference Between Stocks, Bonds, and Mutual Funds Stocks: You own a piece of the company You make money if the company does well Bonds: You loan money to a corporation or government You earn the interest Mutual Funds: You own one portion of a collection of stocks, bonds, or other securities Investment Basics
  • 11. The Three Main Markets: NYSE : N ew Y ork S tock E xchange Oldest, largest, best-known stocks NASDAQ : Large, mid-sized, and small growth companies AMEX : A merican S tock Ex change Mid-sized growth companies Investment Basics
  • 12.
    • Large :
    • Often have high prices
    • Low risk of failure
    • Usually pay regular dividends
    • Small :
    • Potential for growth is greater than for larger companies
    • Generally prices are lower
    The Difference Between Large and Small Companies: Investment Basics
  • 13.
    • Common Stocks:
    • Pay dividends based on performance of the company
    • Have higher risk but may have higher reward
    • Preferred Stocks:
    • Dividend amount is preset
    • Dividends are paid on preferred stocks before common stocks
    • Have lower risk but may limit reward
    Investment Basics
  • 14.
    • Stock Splits:
    • More shares are created at a lower price per share
    • Stockholders profit if stocks go up
    • Indicated with an (s) in the paper
    • Ex : Dell $109  $54
    Investment Basics
  • 15. Other Terminology: Blue Chips the largest and most profitable stocks Bull Market a market that is rising Bear Market a market that is falling Investment Basics
  • 16. Why long term investing is the best route? Investment Basics
  • 17. DJIA over last 33+ years :
  • 18. PE Ratio or Price-to-Earning Ratio
    • Market Value Per Share/Earnings per Share
    • If a company is currently trading at $43 a share and the EPS over the last 12 months were $1.95 per share, the P/E ratio for the stock would be $22.05
    • ($43/$1.95)= $22.05
    What stocks should I buy? Investment Basics
  • 19.
    • Earnings per Share or EPS is the firm profit divided by number of shares.
    • Find EPS and PE ratios on the internet & newspaper
    Earnings Per Share Investment Basics
  • 20. PE Ratio
    • More earnings per share given stock price results in a lower PE ratio and a better buy.
    • PE Ratios show how much an investor is willing to pay per dollar of earnings
  • 21. PE Ratio
    • PE Ratios show how much an investor is willing to pay per dollar of earnings
    • Mattel: An investor is willing to pay $15.81 for every dollar of earnings
  • 22.
    • Beta = % change in stock return / % change in market return.
    Apple Inc.
    • Beta = 1 means that the stock and market change by the same percentage.
    • Larger beta means a larger change than the market on any given day.
  • 23. Where to get more information
      • American Stock Exchange- www.amex.com
      • NASDAQ- www.nasdaq.com
      • NYSE- www.nyse.com
      • CNNfn- www.cnnfn.com
      • Google - http://finance.google.com/finance
      • Database of Corporate Information- www.sec.gov/edgarhp.htm
      • Yahoo! Finance- http://finance.yahoo.com
  • 24. Economics and the Stock Market
    • Micro vs. Macro economics
    • Going from a good idea to a corporation
  • 25. Microeconomics
      • Scarcity and choice
      • Utility and profit maximization
        • How do we allocate our budget, time?
        • How do firms allocate resources to produce goods and services?
      • Efficiency
    Microeconomics studies the behavior of the consumer, household, or firm. Micro vs. Macro
  • 26. Micro and the Stock Market
    • Look at one company:
      • How does this company make its product?
      • Who buys this product?
      • Does the company have good managers?
    • Look at one industry:
      • How much competition in the industry?
      • Is the industry young or old?
    What stock brokers and mutual fund managers get paid to do! Micro vs. Macro
  • 27. Macroeconomics Macroeconomics studies the economy as a whole or as aggregates and attempts to predict or forecast changes in national output, unemployment, and inflation. Micro vs. Macro
  • 28. Macro & the Stock Market
    • Look at the whole economy:
      • Inflation: Producer and Consumer Price Indices (PPI & CPI)
      • Unemployment: Unemployment rate
      • Interest rates: actions of the Fed
      • Productivity
    • Use information to estimate good times to buy and times to sell.
    Note: an “active” investor thinks about how these indicators will affect the economy in 3 months! Micro vs. Macro
  • 29. When is the news good?
    • Example : decrease in the unemployment rate:
      • Good : sign of a growing economy  increased consumer spending  increased profits.
      • Bad : indication of future labor shortages  increasing wages  inflation  fed increases interest rates  decrease profits, slow growth.
  • 30. U.S. Department of Labor Bureau of Labor Statistics “ Economy at a Glance” http://www.bls.gov
  • 31.
    • Product idea: on-line financial services including banking, investments, retirement planning, estate planning, legal services, etc.
    • Need funds to start business - find investors “ venture capitalists. ”
    • Each investor owns a stake or “ share ” of the corporation and has limited liability.
    Going Public: From a Good Idea to a Corporation Going public
  • 32.
    • Suppose the company is doing well. You need more money - go public, “ initial public offering ”
    • Going public: investment bank creates a prospectus and buys all shares of stock and resells them at a set price to the public
    • A “ tombstone ” is the public notice of an IPO
    Going Public: From a Good Idea to a Corporation Going public
  • 33.  
  • 34.  
  • 35. Important to Stress at the End of the Game
    • Diversification
    • Mutual Funds
    • Long-Term Proposition