Investing in Stocks

1. Investing in Stocks How to Own A Business Without Showing Up for Work

2. A search engine … but also a stock August 2004: $85 January 2008: $650 Sept 2019: $1239 Would you like to own Google?

3. What Makes Stocks So Important? Part of an overall savings plan, including • Cash (savings, CDs, money market funds) • Life insurance/annuities • Bonds • Mutual funds

4. Do YOU Own Stocks? You may, if you • Are saving for college • Section 529 plans, ESAs • Have a job offering a • 401(k) plan or pension • Own an IRA • Received UTMA gifts of stock or mutual funds

5. What’s A Stock? Grants the owner • “Proportionate share” of net assets and earnings • Voting rights • Limited liability

6. Know Any of These Stock Issuers? McDonald’s (MCD-NYSE) • Also: JBX, WEN, CKR, YUM Coca-Cola (KO-NYSE) • Also: PEP, BUD American Eagle Outfitters (AEOS-Nasdaq) • Also: ANF, GPS Netflix (NFLX-NYSE) • Also: DIS, AMZN

7. Debt vs. Equity Two ways to raise corporate money • Equity Financing • Owners = stockholders • Debt Financing • Lenders = loans/bondholders

8. Risk Stock ownership doesn’t guarantee • Dividends • Stock value

9. Risk vs. Reward Average annual returns • Stocks – 8.9% (No dividends) • T-Bonds – 7.8% • T-Bills – 5.9%

10. Common “Junior” claim on assets Preferred “Senior” to common Different voting rights Fixed dividends (usually) Types of Stock

11. How Stocks Trade Primary market • Newly issued stock (“IPO”) • Corporation gets the purchase price Secondary market • “Resale market” • “Selling stockholder gets purchase price

12. How Stocks Trade New York Stock Exchange • AKA “listed market” • Physical trading floor • Specialist system Nasdaq • AKA “over-the-counter” market • Computerized network of dealers • Dealers act as market makers

13. What Causes Prices To Change? Supply and demand • A stock sells for whatever people think it’s worth • Expectations • Earnings especially Company value (capitalization) • Share price x shares outstanding

14. Quotes on the Internet

15. A Stock Portfolio Most stock investors own more than one issue. Let’s say you own Shares Company Last 300 MCD 35.81 200 KO 40.52 400 AEOS 24.75 2,500 BBI 3.93 What’s your portfolio worth?

16. Stock Indexes “Market thermometers” • Dow Jones Industrial Average • S&P 500 Index • Nasdaq Composite Index

17. Stock Indexes

18. What Kind Of Investor Are You? Bull • Expect rising stock prices • Go “long” (buy) Bear • Expect falling stock prices • “Sell short” or remain in cash temporarily

19. What Kind Of Investor Are You? Chicken • Stay out of the market altogether • Fearful Hog • High risk trader • Attempts to make a “killing”

20. Time/Objective and Risk Short Term (least risk) • 1-3 Years • Auto purchase • Senior trip • College Medium Term (moderate risk) • 3-10 Years • Home down payment • Graduate school • Buy business Long Term (greatest risk) • >10 Years • Retirement

21. Building A Portfolio A diversified assortment of stocks reduces risk • Capitalization • Large-cap stocks • Mid-cap stocks • Small-cap stocks • Style • Growth stocks • Value stocks

22. Remember Your Portfolio? Shares Company Before Now 300 MCD 35.81 37.44 200 KO 40.52 38.21 400 AEOS 24.75 28.99 2,500 NFLX 3.93 3.65 • What’s your portfolio worth now? • What was the percentage change? • What’s the weight of AEOS in your portfolio now?

23. Instant Portfolios Mutual (and exchange-traded) funds • Pre-built themed portfolios • Can be purchased in small lots • Some mutual funds: $50 • Exchange-traded funds: 1 share • Thousands of choices

24. Investing In Stocks Questions and Answers