Chapter 11.2 notes

1. Chapter 11.2 notes Why invest?

2. Basic Investment Considerations • Risk-return relationship – the more your risk, the higher the potential return • Investment objectives – retirement, vacations, college fund? • Simplicity – don’t invest in something you don’t understand • Consistency – invest consistently over long periods of time

3. diversification • Putting money into different investments, different risk levels, etc.

4. Chapter 11.3 notes Stocks

5. The basics • You invest in a stock at a certain price per share • You make money when the price goes up • Called capital gains

6. 2 types of stock • Common – gives voting rights • Preferred – gives a share of profits, but no voting rights

7. Organized Stock Exchanges • Stock is sold through exchanges • Securities Exchanges – places where buyers and sellers meet to trade securities • New York Stock Exchange (NYSE) – oldest and largest original exchange; in NYC; use auctioning process through face to face trading; now a lot of trades are electronic

8. What it looks like Outside on Wall St. Inside on the floor

9. Over-the-Counter Markets • OTC – electronic marketplace for securities that are not traded on an organized exchange. • National Association of Securities Dealers Automated Quotation (NASDAQ) • most important OTC • largest electronic stock market • trading is done w/ a computer and telecommunications network that connects investors in over 80 countries • over 4,000 stocks

10. Measures of Stock Performance • Dow-Jones Industrial Average – most popular and widely publicized measure of stock performance. 30 stocks including B of A, Exxon, Coke, GE, Wal-mart and Disney; measured in points • Standard and Poor’s 500 – measures price changes of 500 stocks

11. Bull vs. Bear • Bull v. Bear Markets – Bull = strong w/ prices going up for a while; Bear = “mean” market, w/ prices falling sharply for several months

12. The Bronze Bull