Investment Information / Averages


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Investment Information / Averages

  1. 1. Chapter 3 Investment Information and Securities Transactions
  2. 2. Online Investing, Information, and Trading <ul><li>Learning Goals </li></ul><ul><ul><li>Discuss the growth in online investing and the pros and cons of using the Internet as an investment tool. </li></ul></ul><ul><ul><li>Identify major types and sources of traditional and online investment information. </li></ul></ul><ul><ul><li>Explain the key aspects of commonly cited stock and bond market averages and indexes. </li></ul></ul><ul><ul><li>Review the roles of stockbrokers. </li></ul></ul><ul><ul><li>Describe the basic types of orders, online transactions, transaction costs, and legal aspects of investor protection. </li></ul></ul><ul><ul><li>Discuss roles of investment advisors and investment clubs. </li></ul></ul>
  3. 3. Getting Started in Online Investing <ul><li>Internet is a major force in investing </li></ul><ul><ul><li>Makes investing more accessible to more people </li></ul></ul><ul><ul><li>Provides access to sophisticated investment tools </li></ul></ul><ul><ul><li>Convenient, relatively simple, inexpensive and fast </li></ul></ul>
  4. 4. Online Investment Tools <ul><li>Investment Education Websites </li></ul><ul><ul><li>Offer tutorials, online classes and articles </li></ul></ul><ul><ul><li>Examples: Investing Online Resource Center , Investor , The Motley Fool </li></ul></ul><ul><li>Investments Tools Websites </li></ul><ul><ul><li>Develop financial plans, set investment goals </li></ul></ul><ul><li>Planning Tools Websites </li></ul><ul><ul><li>Provides financial calculators </li></ul></ul><ul><ul><li>Example: Kiplinger’s Personal Finance </li></ul></ul>
  5. 5. Figure 3.2 Financial Calculators Concerned with Stocks
  6. 6. Online Investment Tools <ul><li>Screening Tools Websites </li></ul><ul><ul><li>Sort through databases of stocks, bonds and mutual funds to find those with specific characteristics </li></ul></ul><ul><ul><li>Examples: and Yahoo!Finance </li></ul></ul><ul><li>Charting Tools Websites </li></ul><ul><ul><li>Plot performance of stocks over a specified time period </li></ul></ul><ul><ul><li>Examples: and </li></ul></ul><ul><li>Stock Quotes and Portfolio Tracking Websites </li></ul><ul><ul><li>Obtain prices and track stock performance </li></ul></ul><ul><ul><li>Examples: Yahoo!Finance and MSN Money </li></ul></ul>
  7. 7. Figure 3.3 Zacks Predefined Screener
  8. 8. Figure 3.4 Stock Chart for Qualcomm
  9. 9. Pros and Cons of Using the Internet as an Investment Tool <ul><li>Exercise same cautions as regular investing </li></ul><ul><li>Remember: there is no live broker to act as a “safety net” </li></ul><ul><li>Be skeptical of “free” advice online </li></ul><ul><li>Know what you are buying and from whom </li></ul><ul><li>Watch out for frequent trading </li></ul><ul><ul><li>High transaction costs </li></ul></ul><ul><ul><li>Higher taxes on short-term gains </li></ul></ul><ul><li>Beware of the risks of margin trading </li></ul>
  10. 10. Types of Investment Information <ul><li>Descriptive Information – factual data on past behavior of economy, market, industry company or given investment vehicle </li></ul><ul><li>Analytical Information – available current data in conjunction with projections and recommendations about potential investments </li></ul>
  11. 11. Types of Investment Information <ul><li>Economic and current events </li></ul><ul><li>Industry and company information </li></ul><ul><li>Information on alternative investment vehicles </li></ul><ul><li>Price information </li></ul><ul><li>Information on personal investment strategies </li></ul>
  12. 12. Sources of Investment Information <ul><li>Economic and Current Event Information </li></ul><ul><ul><li>Finance Journals: Wall Street Journal, Barron’s, Investor’s Business Daily </li></ul></ul><ul><ul><li>General newspapers: The New York Times </li></ul></ul><ul><ul><li>Institutional News: Dow Jones, Bloomberg Financial Services, AP, UPI, CNNMoney </li></ul></ul><ul><ul><li>Business Periodicals: Fortune, Forbes, Business Week, Kiplinger’s Personal Finance, Money, Smart Money, Worth </li></ul></ul><ul><ul><li>Government Publications: Economic Report of the President, Federal Reserve Bulletin </li></ul></ul><ul><ul><li>Special Subscription Services: Kiplinger Washington Letter </li></ul></ul>
  13. 13. Sources of Investment Information (cont’d) <ul><li>Industry and Company Information </li></ul><ul><ul><li>General business periodicals: Wall Street Journal, Business Week, Forbes, Fortune </li></ul></ul><ul><ul><li>Trade publications: periodicals devoted to a specific industry </li></ul></ul><ul><ul><li>Regulation FD: requires critical company information to be disclosed simultaneously to investment professionals and public </li></ul></ul><ul><ul><li>Company Web sites </li></ul></ul><ul><ul><li>Stockholders’ Reports: report published annually by publicly held corporations </li></ul></ul><ul><ul><li>Form 10-K: annual statement filed with SEC by all companies with publicly traded stock </li></ul></ul><ul><ul><li> SEC-maintained website with free access to SEC filings </li></ul></ul>
  14. 14. Sources of Investment Information (cont’d) <ul><li>Industry and Company Information (cont’d) </li></ul><ul><ul><li>Comparative Data Sources: Dun & Bradstreet’s Key Business Ratios </li></ul></ul><ul><ul><li>Subscription Services: Standard & Poor’s Corporation, Mergent, Value Line Investment Survey </li></ul></ul><ul><ul><li>Brokerage Reports: research reports available to brokerage firm’s clients </li></ul></ul><ul><ul><li>Investment Letters: recommendations of experts in securities investment </li></ul></ul>
  15. 15. Figure 3.5 A Report Containing Descriptive and Analytical Information
  16. 16. Sources of Investment Information (cont’d) <ul><li>Price Information </li></ul><ul><ul><li>Quotations: use ticker symbols to obtain current price data and statistics on companies </li></ul></ul><ul><ul><li>TV sources: Bloomberg TV, CNBC, CNN Headline News </li></ul></ul>
  17. 17. Sources of Investment Information (cont’d) <ul><li>Other Online Investment Information Sources </li></ul><ul><ul><li>Financial Portals: supersites on the Web that combine investing features with other personal finance features </li></ul></ul><ul><ul><li>Bond sites: online resources for bond and interest rate information </li></ul></ul><ul><ul><li>Mutual fund sites: online resources for mutual fund information </li></ul></ul><ul><ul><li>International sites: online resources for global investing, from country research to foreign currency exchange </li></ul></ul><ul><ul><li>Investment discussion forums: websites where investors can exchange opinions on stocks and investing strategies (Examples: Motley Fool, Yahoo! Finance) </li></ul></ul>
  18. 18. Table 3.3 Symbols for Some Well-Known Companies
  19. 19. Sources of Investment Information (cont’d) <ul><li>Avoiding Online Scams </li></ul><ul><ul><li>Beware of stock manipulators posting false news or overly optimistic opinions </li></ul></ul><ul><ul><li>Always know your source </li></ul></ul><ul><ul><li>Beware of “pump-and-dump”—promoters who hype a stock and sell out on the inflated prices </li></ul></ul><ul><ul><li>Beware of “get-rich-quick”—promoters selling worthless investments to naïve buyers </li></ul></ul>
  20. 20. Sources of Investment Information (cont’d) <ul><li>Protect Yourself by Asking Three Key Questions: </li></ul><ul><ul><li>Is the investment registered? </li></ul></ul><ul><ul><li>Is the person licensed and law-abiding? </li></ul></ul><ul><ul><li>Does the investment sound too good to be true? </li></ul></ul>
  21. 21. Understanding Market Averages and Indexes <ul><li>Reasons to use market averages and indexes </li></ul><ul><ul><li>Gauge general market conditions </li></ul></ul><ul><ul><li>Compare your portfolio performance to large, diversified portfolio </li></ul></ul><ul><ul><li>Study market cycles, trends and behaviors to forecast future market behavior </li></ul></ul><ul><li>Stock market averages and indexes measure the general behavior of stock prices over time </li></ul><ul><ul><li>Averages reflect the arithmetic average price behavior at a given point in time </li></ul></ul><ul><ul><li>Indexes measure the current price behavior relative to a base value set at an earlier point in time </li></ul></ul>
  22. 22. Understanding Market Averages and Indexes (cont’d) <ul><li>Dow Jones Industrial Average (DJIA) </li></ul><ul><ul><li>Most popular average </li></ul></ul><ul><ul><li>Comprised of 30 high quality, diversified stocks </li></ul></ul><ul><ul><li>Tracks overall market activity </li></ul></ul><ul><ul><li>Stock makeup can change to better reflect the broader stock market </li></ul></ul><ul><li>Dow Jones Transportation Average </li></ul><ul><ul><li>Comprised of 20 stocks, including railroads, airlines, freight forwarders and mixed transportation companies </li></ul></ul>
  23. 23. Understanding Market Averages and Indexes (cont’d) <ul><li>Dow Jones Utilities Average </li></ul><ul><ul><li>Comprised of 15 public utility stocks </li></ul></ul><ul><li>Standard & Poor’s 500 Composite Index </li></ul><ul><ul><li>Comprised of 500 stocks from major industry sectors </li></ul></ul><ul><ul><li>More broad-based and representative of overall market than DJIA </li></ul></ul><ul><ul><li>True index calculated from 1941–1943 base period closing market values </li></ul></ul><ul><ul><li>Standard & Poor’s provide seven other indexes for tracking specific industry sectors </li></ul></ul>
  24. 24. Figure 3.7 Stock Market Averages and Indexes (July 12, 2006)
  25. 25. Understanding Market Averages and Indexes (cont’d) <ul><li>NYSE Composite Index </li></ul><ul><ul><li>Includes 2,100 or so stocks listed in NYSE </li></ul></ul><ul><li>AMEX Composite Index </li></ul><ul><ul><li>Includes all stocks listed on the AMEX </li></ul></ul><ul><li>Nasdaq Composite Index </li></ul><ul><ul><li>Includes all stocks traded on the Nasdaq stock market </li></ul></ul><ul><ul><li>Often used to track technology companies’ behavior due to large technology companies listed with Nasdaq </li></ul></ul>
  26. 26. Understanding Market Averages and Indexes (cont’d) <ul><li>Value Line Composite Index </li></ul><ul><ul><li>Includes all 1,700 or so stocks tracked by Value Line </li></ul></ul><ul><ul><li>Uses equal weighting to eliminate the bias of stocks with large total market values </li></ul></ul><ul><li>Wilshire 5000 Index </li></ul><ul><ul><li>Includes 5,000 stocks traded on the major exchanges </li></ul></ul><ul><li>Russell 1000 Index </li></ul><ul><ul><li>Includes 1,000 largest companies </li></ul></ul><ul><li>Russell 2000 Index </li></ul><ul><ul><li>Includes 2,000 small companies </li></ul></ul><ul><li>Europe/Australia/Far East (EAFE MSCI) </li></ul><ul><ul><li>Tracks stocks trade on foreign exchanges </li></ul></ul>
  27. 27. Bond Market Indicators <ul><li>Bond Yields </li></ul><ul><ul><li>Total return on bond purchased at current price and held to maturity </li></ul></ul><ul><ul><li>Interest +/– changes in bond value </li></ul></ul><ul><ul><li>Reported as annual rate of return </li></ul></ul><ul><li>Dow Jones Corporate Bond Index </li></ul><ul><ul><li>Calculated for utility bonds, industrial bonds and a composite bond average </li></ul></ul>