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UNIT 5: Investing Part 3: Stocks

UNIT 5: Investing Part 3: Stocks. Dollars and Sense. Review: Investments. Your need for savings will increase as your goals become more expensive. Investing at a young age can lead to better security and economic independence later in life. Investing in Stocks. Why Invest in Stocks?

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UNIT 5: Investing Part 3: Stocks

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  1. UNIT 5: InvestingPart 3: Stocks Dollars and Sense

  2. Review: Investments Your need for savings will increase as your goals become more expensive. Investing at a young age can lead to better security and economic independence later in life.

  3. Investing in Stocks • Why Invest in Stocks? • Become part owner in a corporation! • Earn a high rate of return. • Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7% • Over past 20 years, American Stocks have had an annual return of 13%!

  4. Investing in Stocks • Ownership of Stocks • Ownership in a corporation is shown in printed form, called a stock certificate.

  5. Investing in Stocks • Market Value: the price at which a share of stock can be bought and sold for in the market. • What affects price of stock? • How is the business doing? Financial reports, business releases. • State of Economy. (Which phase of business cycle?) • Political Developments

  6. How Do I Make $$$ In The Stock Market? • 2005 = Pepsi $31.94 • Buy Pepsi today at $73.21 Buy 100 shares. $7,321. • Imagine 2 years from now…(April 2015) • Pepsi’s stock price on April 2015 is now $101.94!! • You sell your 100 shares now valued at $10,194! • You have essentially earned $2,873! (Amount Buy – Amount Sold)

  7. How Do I Lose $$$ In The Stock Market? • Buy Pepsi today at $73.21. Buy 100 shares. $7,321. • Imagine 2 years from now…(April 2015) • Pepsi’s stock price on April 2013 is now $31.94!! • You sell your 100 shares now valued at $3,194! • You have essentially lost $4,127! (Amount Buy – Amount Sold)

  8. Selecting Stock Investments • There is no secret or special formula. • It requires: hard work and research. • Four-Step Process for Deciding on Stocks • Observe and Analyze Economic and Social Trends • Determine Industries that will be affected • Identify Companies in those industries • Decide whether to buy, sell or hold the stock of those companies.

  9. Where are Stocks Sold? NYSE: New York Stock Exchange AMEX: American Stock Exchange Nasdaq: National Association of Securities Dealers Automated Quotations

  10. NYSE, AMEX, Nasdaq • Buying Stock = “Trade” when the best bid meets the lowest offer to sell. • Stock prices are determined by supply and demand.

  11. Stock Exchanges • Compare a Stock Exchange to Ebay… • Ebay and Stock Exchanges = Auction sites • Seller puts an item up for sale, and several people compete to buy the same item.

  12. “Going Public” • Go Public: the process a company takes to offer shares of stock to the public for the first time. • Initial Public Offering (IPO): the first sale of a corporation’s public shares.

  13. Why “Go Public” • Businesses offer stock for many reasons, that include: • Raise Capital • Expand Operations/Create Jobs • Fund Research and Development of Products • Pay Off Debt • Provide Employees with Benefits • Develop Marketing Strategies • Generate Additional Revenue

  14. Selecting Stocks • In selecting a specific stock to buy, you should learn something about the business record of the corporation. • There is no secret or special formula. • It requires: hard work and research. • The opportunity to earn a high rate of return attracts people to invest in stocks.

  15. Selecting Stocks • When considering stocks, ask the following questions: • Has the company been profitable over a period of years? • Does the company have growth potential in coming years? • How does the company compare with others in its industry?

  16. Identifying Important Figures in Selecting Stock • Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise. • When evaluating stocks, revenue growth serves as an indication of a company's health.

  17. Which to Buy Pepsico 66.02 17.6 p/e Coke 56.82 16.6 p/e Who’s got a Better Investment?

  18. Identifying Important Figures in Selecting Stock • P/E Ratio: Market Value per Share/Earnings per Share • it shows how much investors are willing to pay per dollar of earnings. It shows value. • In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry

  19. Identifying Important Figures in Selecting Stock 52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks). High Low Current Coke 61 43 57 Pepsi 67 47 66

  20. Identifying Important Figures in Selecting Stock • Earnings per Share: • = Net Income – Dividends / Average Outstanding Shares • EPS indicates the profitability of a company.

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