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Mastering Investment Basics: Understanding Stocks and Market Performance

This chapter highlights basic investment considerations focusing on risk-return relationships, investment objectives, simplicity, consistency, and diversification. It also covers the fundamentals of stock investments, including common and preferred stocks, organized stock exchanges like the NYSE, and OTC markets like NASDAQ. Additionally, it explores measures of stock performance such as the Dow-Jones Industrial Average and the Standard and Poor’s 500, along with insights into bull and bear markets.

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Mastering Investment Basics: Understanding Stocks and Market Performance

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Presentation Transcript

  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

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