2. 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.
3. 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.
4. 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.
5. 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
6. Defensive or
Staple Stocks
1) Market value
doesn’t get hurt as
badly when economy
goes down.
Ex. Food,
pharmaceutical
companies.
7. 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.
8. 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 an
investor buys the same stock with
the same amount of money at
regular intervals for a long period
of time.
9. 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 $50
Possible reason for a stock split:
Lower stock price will attract more
investors.
10. 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
11. 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
12. 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.
