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Lecture 02 - Basics of Investing I 

Lecture 02 - Basics of Investing I

 

 
 
Tags:  online mortgages  stock market update  stock market tutorial  stock market education 
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Published:  January 02, 2012
 
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Slide 1: Spring 2008 Economics 98 / 198 DeCal ` Introduction to Stocks Basics of Investing I www.ocf.berkeley.edu/~jml/decal
Slide 2: Schedule Today    Administrative Issues Current Events Lecture content: Basics of Investing – – – – – – What is a stock? How are they traded? What are brokerages? Different types of orders What is the market? Terminology   Learning how to use the simulation; IBD Assignments / Readings
Slide 3: Administrative Issues         Attendance & Sign-In Name Tags Enrollment Emails Webpage Syllabus Review News Presentation Sign Ups Investor’s Business Daily Access
Slide 4: Current Events
Slide 5: Current Events  Troubled / volatile markets – – Damages from sub-prime mortgages and the housing sector Fear of risk of recession  Weak job reports  Fed (Federal Reserve) meeting next week – Rate cuts?  Apple releases new lines of iPod
Slide 6: Current Events
Slide 7: NASDAQ
Slide 8: S&P 500
Slide 9: Lecture Content
Slide 10: What is a stock?     Common stock – most “common” type Gives you a “share” of ownership of a publicly traded company Entitled to a portion of profits – dividends Stock ownership = claim on assets and earnings – Also something called “preferred stock”
Slide 11: What is a stock?    Ticker symbols – Set of letters that represent a security traded on an exchange – Ex. MSFT, GS, AAPL, MA, BUD, LUV Stock quotes – List of prices for a stock at a particular point during the trading day Stock tickers – What do those green and red numbers mean?
Slide 12: Different Types of Stock  Preferred Stock – – No voting rights to company issues Issued fixed dividends forever – main form of return  Common Stock – – – – Majority of stock we see and hear about in the news Ownership of the company Entitled to portion of the earnings Earn returns mainly through capital gains  What are capital gains? – – Increase in asset value relative to the purchases price Not realized until asset is actually sold
Slide 13: Stocks vs. Bonds  Stocks are equity – – – Generally considered riskier Quite possible to lose a significant portion, if not all, of your money Potential for much higher returns  Bonds are debt – – Guaranteed a fixed return Have a higher claim than stockholders  What does this mean?
Slide 14: Dividend Debate  Distribution of a portion of a company's earnings to its shareholders (usually cash)
Slide 15: What Can Cause Stock Prices to Change? Supply and Demand! (What affects supply / demand of a stock?)
Slide 16: Two Markets  Primary Market – market in which investors have first opportunity to buy newly issued shares – Initial Public Offering (IPO)  First time that company offers its shares to public markets (securities bought directly from company)  Where private companies become public  Secondary Market – investors trade alreadyissued shares of companies with each other – – Ie. The stock market Trading of a company’s stock DOES NOT DIRECTLY involve the company financially
Slide 17: How Stocks Are Traded  Major exchanges – Lists stocks (and other securities), sets policies for how stocks are traded    New York Stock Exchange (NYSE) American Stock Exchange (AMEX) National Association of Securities Dealers Automated Quotation  Only “publicly traded companies” are listed
Slide 18: Market Indices (Index)  Definition – Aggregate value of combining several stocks together and intended to represent entire or portion of the stock market S&P 500 –  500 stocks chosen by Standard & Poor to represent US stock market     NASDAQ Composite Dow Jones Industrial Average – 30 most significant stocks traded S&P 600 Small-Cap Russell 3000 – 3000 of the largest stocks in the US
Slide 19: Stocks Markets & Animals  Bull Market – When everything in the market is going great and stocks are generally heading upwards  Bear Market – When everything is NOT GOOD and stocks are generally headed  NOTE: Nothing lasts forever! Good times and bad times will end at some point Other animal terms: pigs, chickens 
Slide 20: Brokerages  Need a medium to trade through – this is where brokerages come in Cash vs. margin account Choosing a broker –   full service vs. discount    Fees (Commission) Services Minimum balance
Slide 21: Opening an Account  Not a hard process- most of it just some paperwork and mail – – – Sign-up online and download forms Mail checks, forms, and copy of ID Accounts created within a couple of days  Cash accounts usually never turned down – Margin accounts might be a problem if you have pretty bad credit history  To start investing, won’t need much else other than a computer, some money, and investing know-how
Slide 22: Brokerages  Some links for brokerage comparisons – – Find something that works for what YOU need No one broker that is best for all investors  http://www.investingonline.org/gso/broker _ratings.html http://www.consumersearch.com/www/int ernet/online-brokers/reviews.html http://www.stockbrokerguide.com/  
Slide 23: Different types of Orders    Market Order Limit Order  An order to buy or sell a set number of shares at specified price of better. Limit orders usually cost more, but useful for getting specified price. By better I mean, lower. Stop Order  An order placed for a security for when the price surpasses a particular point, which helps buy or sell at a particular price. Limiting loss or locking profits. Many people use this during vacations if they can’t use it.
Slide 24: Different Types of Orders  Stop Limit Order  Executed at a specified price (or better) after a given stop price has been reached. Order becomes then a limit order to buy (or sell) at the limit price or better  Precision purposes Good Until Cancelled (GTC) Good Until End of Day  
Slide 25: Things to Internalize  Learn the basics! – – Need to know what basic terms mean Articles should help you   Advantages of starting young Useful resources for stock tutorials – – – www.investorwords.com www.investopedia.com www.fool.com
Slide 26: Homework / Reading   Set up your account Online articles (Course website) – – – – – “The Five Biggest Stock Market Myths” “Getting Started” “Brokers and Online Trading” “Stocks” Get started on “Investing 101”
Slide 27: IBD Subscription Investopedia Simulation

   
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