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Stock marketv2

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Stock marketv2

  1. 1. The Stock Market <br />& Introduction to the LHA Stock Market Game Mr. Servello<br />
  2. 2. Markets<br />A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange (Wikipedia)<br />Stock Markets<br />Bond Markets<br />Futures Markets<br />Commodities Markets<br />Currency Markets<br />Money Markets<br />
  3. 3. Stocks and Bonds<br />Companies that need $$$ can borrow, but they can also issue Bonds<br />A bond is a document that formally promises to pay back a loan under specified terms and a given period of time.<br />
  4. 4. Bonds<br />Key Features of Bonds<br />Face value: Price of the bond. The amount that the buyer will pay/lend the issuer<br />
  5. 5. Bonds<br />Key Features of Bonds<br />Maturity date: The date when the Bond expires. The borrower pays back the lender. Bonds can also be sold prior to maturity.<br />
  6. 6. Bonds<br />Key Features of Bonds<br />A fixed payment: also known as a coupon; which is calculated at a set interest rate at the time of issue<br /><ul><li>Amount is known in advance and does not change once the bond is issued. (This is a VERY IMPORTANT feature)</li></li></ul><li>Bonds<br />Key Features of Bonds <br /><ul><li>Coupons stay the same
  7. 7. Interest rates change
  8. 8. The result is that bonds can rise or fall in value</li></li></ul><li>Why Bonds?<br />
  9. 9. Who issues Bonds?<br />Corporate<br />Government (Federal or Provincial)<br />Municipal<br />Financial Institutions –Mortgage Backed<br />
  10. 10. Benchmarks<br />Benchmarks serve the purpose of comparison. We compare a certain bond to a benchmark to see if it performs better or worse than the usual.<br />Click here to see a recent table of Canadian Benchmarks<br />http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en<br />
  11. 11. Bid/Ask Spread?<br />If you are buying a bond, you will pay the Ask Price (always higher)<br />If you are selling a bond, you will received the Bid Price (always lower)<br />The spread or (difference) is kept by the broker as profit. This is not the same as commission which you will have to pay as well.<br />
  12. 12. Yield to Maturity<br />Receive Coupon payment of 100$ each anniversary<br />100$<br />100$<br />100$<br />Today – Buy Bond 900$<br />Year 3 – Bond Matures 1000$<br />3 Coupon Payments = 300$<br />Gain from Bond Price = 100$<br />YTM = Gains/Price Paid<br />YTM = 400/900<br />YTM = 44% over 3 years<br />
  13. 13. Yield to Maturity<br />Receive Coupon payment of 100$ each anniversary<br />130$<br />130$<br />130$<br />Today – Buy Bond 980$<br />Year 3 – Bond Matures 1000$<br />3 Coupon Payments = <br />Gain from Bond Price = <br />YTM = Gains/Price Paid<br />YTM = / <br />YTM = % over 3 years<br />
  14. 14. Do You Recognize Any Companies?<br />
  15. 15. Stocks<br />A stock is a certificate that certifies ownership of a certain portion of a firm.<br />When a company issues stocks<br />It does not borrow funds/add to debt<br />Instead it increase the number of owners<br />
  16. 16. Stocks<br />Unlike bonds or direct borrowing, stocks do not promise a fixed annual payment. (Like the coupon)<br />Returns depend on company performance. If profits are high, the firm may pay dividends.<br />
  17. 17. Stocks<br />A capital gain is an increase in the value of an asset. <br />If you buy a share at 10$ and it increases to 15$, your capital gain is 5$<br />A realized capital gain occurs only when the owner sells the stock for a profit<br />
  18. 18. The Common Stock Market<br />Common Stock <br />Ownership<br />Distribution of earnings (variable)<br />Share of assets<br />Right to vote<br />Preferred Stock <br />Similar to Common stock with 2 main differences<br />+ fixed distribution of earnings<br />-- no voting right<br />
  19. 19. Types of Markets - Exchanges<br />Physical Location<br />Trading by members<br />Stocks traded are ‘listed’ companies<br />There are a number of exchanges around the world; you may have heard of the NYSE or the TSX<br />http://en.wikipedia.org/wiki/List_of_stock_exchanges<br />
  20. 20.
  21. 21. Bear and Bull<br />Describes upward and downward market trends. <br />Can be used to describe a security (company), sector or market as a whole<br />
  22. 22. Types of Orders of Stock<br />Market Order<br />Buy/Sell at market price<br />Limit Order<br />Buy/Sell at specific price<br />Stop Loss Order<br />Protect against big losses<br />Trailing Stop Order<br />Protect a profit<br />
  23. 23. Types of Orders of Stock<br />Good till Cancelled<br />Active until you cancel the order<br />Day Order<br />Must be re entered each day if not filled<br />All or None<br />The entire order must be filled<br />
  24. 24. Common Stock<br /> Owners are also referred to as shareholders or equity owners.<br />A brokerage account is where the customer's securities and assets are held in the name of the brokerage firm, rather than you holding the stock certificate yourself. <br />Board of Directors: A group of individuals that are elected.  Representatives of the stockholders. The roles include such issues as the hiring/firing of executives, dividend policies, options policies and executive compensation. <br />Every public company must have a Board of Directors. <br />
  25. 25. Dividends<br />Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS.<br />Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this.<br /> <br />Common Stock<br />
  26. 26. Capital Gain: Profit that results when the price of a security rises above its purchase price and the security is sold (realized gain). A capital loss would occur when the opposite takes place.<br />Growth Stock: A stock that experiences a continued period of growth exceeding that of the economy. Generally, the duration is over a year in length.<br />Income Stock: A stock that has a high, consistent, dividend paid annually.<br />Speculative Stock: Stocks that offer the potential for substantial price increase, usually because of some special situation such as new management or the introduction of a promising new product.<br />Types of Stock<br />
  27. 27. Cyclical Stocks: these are stocks whose earnings and overall market performance are closely linked to the general state of the economy.<br />Defensive Stocks: these stocks tend to hold their own, and even do well, when the economy starts to drop<br />Mid-cap stocks: are medium-sized companies, generally with market values of less than $4-$5 billion but more than $1 billion.<br />Small-cap stocks: are stocks that generally have market values of less than $1 billion but can offer above-average returns.<br />Types of Stock<br />
  28. 28. Reading Stock Quotes<br />
  29. 29. Reading Stock Quotes<br />Columns 1 & 2<br />52-Week High and Low – The highest and lowest prices the stock traded over the previous 52 weeks (one year) and typically does not include the previous day’s trading.<br />
  30. 30. Reading Stock Quotes<br />Column 3<br />Company Name & Type of Stock – The name of the company. If no special symbol or letter follows the name, it is common stock. Different symbols indicate different classes of shares (i.e., “pf” means preferred stock). <br />
  31. 31. Reading Stock Quotes<br />Column 4<br />Ticker Symbol – The unique alphabetic name which identifies the stock. When looking for stock quotes online, you search for a company by the ticker symbol. <br />
  32. 32. Reading Stock Quotes<br />Column 5<br />Dividend Per Share – The estimate of the anticipated yearly dividend per share in dollars and cents. If this space is blank, the company does not currently pay out dividends.<br />
  33. 33. Reading Stock Quotes<br />Column 6<br />Price/Earnings Ratio – Shows the relationship between a stock’s price and the company’s earnings for the last four quarters. Calculated by dividing the current price per share by the earnings per share. (higher is better)<br />
  34. 34. Reading Stock Quotes<br />Column 7<br />Year-to-Date Percentage Change – Reports gain or loss in each stock’s price as a percentage of its price on January 1.<br />
  35. 35. Reading Stock Quotes<br />Column 8<br />Trading Volume – The total number of shares traded for the day (in hundreds). Add two zeros to the end of the number listed to get the actual number traded.<br />
  36. 36. Reading Stock Quotes<br />Columns 9 & 10<br />Day High and Low – The price range at which the stock has traded throughout the day. These are the maximum and the minimum prices that people have paid for the stock. <br />
  37. 37. Reading Stock Quotes<br />Column 11<br />Close – The last trading price recorded when the market closed on the day.. <br />
  38. 38. Reading Stock Quotes<br />Column 12<br />Net Change – The change in the stock price from the previous day’s closing price in dollars. When the net change is positive, it is recorded as being “up for the day.”<br />
  39. 39.
  40. 40. Stock Market Indicators<br />Measures the average performance of a group of stocks on a market. <br />Gives an overall performance of the market.<br />Canada – S&P/TSX<br />US – NASDAQ Compsite, Dow Jones Industrial Average etc….<br />List of Indexes<br />http://en.wikipedia.org/wiki/List_of_stock_market_indices<br />
  41. 41. DJIA<br />Price Weighted <br />More expensive stocks makes up bigger portion<br />30 large blue chip companies<br />cross section of industries<br />Leaders<br />
  42. 42. NASDAQ Composite Index:<br />Based on the stock prices of over 5,000 companies traded on the NASDAQ stock market.<br />National Association of Securities Dealers Automated Quotation System.<br />
  43. 43. S&P 500 (Standard and Poor)<br />Value Weighted<br />Perceived value of company<br />500 large blue chip companies<br />Most popular benchmark for index funds<br />What Mutual Funds compare themselves against<br />
  44. 44. Determining the Price of Stock<br />Coca Cola vs Chunky Cola<br />What factors would you be considering when trying to decide between buying these two companies?<br />
  45. 45. Determining the Price of a Stock<br />Price affected by:<br />How much $$$ are you excepted to receive (dividends)<br />When are the dividends expected (Payouts, when companies make Profit, they pay dividends to their investors. The more Shares you have the more Dividends you get)<br />How much risk is involved in the company<br />
  46. 46. Determining the Price of a Stock<br />A stock will be worth less if we are unsure about dividends<br />A stock will be worth more if we are confident about dividends<br />
  47. 47. Determining the Price of a Stock<br />Price of a Stock should be the Present Value of the amounts we are expecting to receive in Dividends<br />Announcements of higher expected future dividends or perceived lower risk should increase the firm’s stock price.<br />
  48. 48. Determining the Price of a Stock<br />Another factor that can affect price is Peoples views of a company<br />One might call this a bubble because the stock price depends on what people expect that other people expect, etc.<br />
  49. 49. Market Efficiency<br />If information is truly public, market prices should reflect that and stock prices are efficient.<br />You are technically not able to ‘beat’ the market<br />Past Performance NEVER predicts the Future!!!<br />
  50. 50. General Market Strategies<br />
  51. 51. Market Crashes<br />The Great Wall Street Crash of 1929<br />Aka Black Tuesday<br />The Crash of 1987<br />Aka Black Monday<br />The Crash of 2008 (Oct 1 – Oct 10)<br />Black Week Oct 6-Oct 10<br />
  52. 52. LHA Stock Market Game<br />You will make an Account on www.marketwatch.com<br />Search for and add yourself to the following game with the password below. <br />Term 1 Game : you will compete against your classmates, each of you has 100 000$ to invest!<br />Game:_______________________<br />Password:___________________<br />

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