Ensure the security of your HCL environment by applying the Zero Trust princi...
The Basics
1. The Basics
“If you don’t know these then you know nothing and you will
learn nothing”
2. A Stock/Share
• Represents a piece of a company
• Your % ownership depends on how many shares you own and how many shares are
outstanding
• Why does it have any value?
• Companies own assets and (generally) bring in revenue
• If you own part of that company, you have a right to those assets/revenues
• And, if you want a right to that wealth, you have to pay, thus establishing the value
3. Market Capitalization = “Value” of Company
• Market Cap is how we refer to the markets valuation of a company
• It is simply the shares outstanding multiplied by the currently traded value
• Just because a stocks value is higher than another does not mean that company is
worth more than the other
• Companies are often segregated by their “cap size”
• We generally use Small, Medium, or Large cap although there are more subsections
• [Reference: http://www.investopedia.com/articles/basics/03/031703.asp]
4. How do we value stocks?
• Through FundamentalAnalysis, many investors discount cash flows to the present value and divide that
TerminalValue by the outstanding shares to find the “true value” of a stock
• FundamentalAnalysis is a method of analyzing a company by using it’s accounting numbers given in the company’s
annual/quarterly reports, analyzing macroeconomic factors that can affect the company’s operations, and much more
• [Reference: http://www.investopedia.com/terms/f/fundamentalanalysis.asp]
• Generally financial models [Often Excel spreadsheets] are developed to calculate these values
• Complexity and results can range by the analyst
• Ultimately, we never know exactly why a stock is trading at x value one day and y value the next.There are
simply too many market forces at work to truly understand all pricing movement.
5. Trading vs Investing
• Investing
• Long-term in nature
• Utilizes a Buy-and-Hold strategy
• More focused on buying fundamentally sound investments with a perceived longevity
• Trading
• Jumps in and out, trying to feel out market highs and lows
• Relies on “timing the market”
• More focused on short-term pricing movements than if a company will exist in 20 years
[Reference: http://www.investopedia.com/ask/answers/12/difference-investing-trading.asp]
6. Growth vsValue
Growth
• Expected to grow faster than the market
• Most of revenue is reinvested to fund growth
• Generally reside in the technology &
alternative energy sectors
• Are more volatile and risky
Value
• Companies that are currently undervalued and
are “due for a market correction”
• Money is distributed to shareholders in the
form of dividends
• Seen as stable “blue chips”
7. Efficient Markets
• The Efficient Market Hypothesis is the idea that share prices generally
reflect all relevant information and therefore, it is impossible to consistently
“beat the market”
• While it is highly unlikely that the markets are perfectly efficient, research
has shown that over long enough time horizons, trying to consistently beat
the market is folly
• This was discussed in our summer reading “A RandomWalk DownWall Street”
8. Additional Information
• You will need to familiarize yourself with security statistics. FIN 300 covers
most of these
• Some statistics include: P/E, EPS, P/B, PM, OM, Etc.
• If you’re feeling up to it, we also suggest revisiting variance & standard
deviation
9. Thank you for reading and we hope to see you
at one of our meetings this fall.
