Stocks

1. Stocks Cole Boyer, Channing Bass, Will Bennett & Clyde Atkins

2. What is a Stock?

3. Markets • A market is where buyers and sellers come to exchange goods (in this case stocks). • Supply and demand determine price. • United States is home to the two largest stock exchanges in terms of Trade Value (NYSE & NASDAQ). • There are over twenty major stock exchanges in the world.

4. Going Public • Going public means releasing ownership of your company to the general population. • IPO: Initial Public Offering – The company sells ownership for cash. • Mutually Beneficial Relationship between company and shareholders: • Short Term – company may use all the capital raised in stock sales for growth • Long Term – each shareholder has a claim to a portion of the company’s profits

5. Going Public (Example) Tesla Motors (TSLA) went public on June 29.

6. Other Reasons for an IPO • Publicity/exposure for the company • Attracting better employees and more clients/customers • The prestige of being a public company • Makes acquisitions and partial ownership deals much simpler

7. Stock Indices • A stock index gives a general idea of how a particular market or sector within a market is doing. • Major US Indices: Dow Jones, S&P 500 • Dow Jones (DJIA): Doesn’t actually pertain to heavy industry. Comprised of 30 stocks (3M, AT&T, Coca-Cola, Intel, etc.) • S&P 500 (INX): Large-cap common stocks. 50 Stocks.

8. Trading Mechanisms • Market Order: Buy/Sell the stock at the current market price. • Limit Order: Set a limit at which you are willing to buy/sell. Trade is completed once the price hits the limit. • Stop (Loss) Order: Set a stop price at which you would like to buy/sell. Once the price is met, trade is entered as a market order. • Shorting: Selling someone else’s shares temporarily, buy them back later (hopefully at a lower price)

9. Trading Mechanisms (cont.) • Bid-Ask Spread: refers to the amount by which asking price exceeds the highest bid. As soon as bid-ask spread=0, the trade is executed. • Margin Account: After buying securities on margin (borrowed money), the leftover account of debt is called the margin account. Collateralized by securities purchased on margin.

10. Wall Street Trading Floor → The New York Stock Exchange (NYSE) is the world's largest stock exchange by market capitalization of its listed companies at $12.25 trillion. → Provides a means for sellers and buyers to trade shares of stocks in companies. → Open Monday - Friday from 9:30am – 4:00pm ET →Continuous auction style

11. Market Makers • Market makers take ownership of shares, allowing people to buy and sell those goods from them. • They also can make or lose money from price movements. • The purpose of market makers is to keep the trading floor competitive and fair for everyone • Known as Market Specialists at the New York Stock Exchange.

12. Day Trading • Day Trading refers to buying and selling a stock (or currencies) all within one market day. • Day Trading has become more popular, since electronic trading facilitates the process.

13. Stock Features • Adjusted Closing Price- accounts for all the actions that a corporation may take that will affect the price of a stock, such as stock splits, dividends, and rights offerings. • Split- corporate action in which a company’s existing shares are divided into multiple shares. • Dividend- the part of the earnings of a corporation that is distributed to the shareholders

14. What Makes a Stock a Good Buy? • Age-old adage: Buy low, sell high • Factors to consider: • Long-term or Short-term? • What type of analysis? • Age and associated risk? • Level of expertise/education and skill sets?

15. Numbers to Watch • P/E Ratio – Price/Earning Ratio • = (Market Value per Share)/(Earnings per Share) • Quantifies market’s optimism in a companies growth potential • A high P/E could indicate market expects high growth • Problems: • only useful when comparing companies within industries • Tech Sector(Apple Inc.) vs. Utilities(Duke Energy) • growth rates of firms

16. Numbers to Watch • Trading Volume – the number of contracts of a security/stock traded in a given timespan • A spike in volume usually has a real-world, event driven explanation

17. Fundamental Analysis • Investing for the Long-term • Theory relies upon the total value of a company over a given future timespan • This is known as finding a company’s intrinsic value. • This method involves a more in depth look at the inner mechanics of a firm when making a decision as to whether or not to buy

18. Technical Analysis • Utilizes stock price charts • Short-term! • Day-trading • Requires trading agility • Hundreds of chart patterns and indicators • Becoming more popular as access to internet and discounted trading platforms increase

19. Derivative Market Holdings • Derivative holdings are market holdings not valued based on the direct worth of a stock or commodity. • Options and futures are examples of derivative market holdings.

20. Derivatives Trading • Derivative trading in the modern market requires the use of long-term computer forecasting, along with an instantly updated system of price recognition and position holding. • The methodology of derivative trading entails trading based on predicted prices of the holding in the future. These prices are based on the value of underlying market terms.

21. Options • Stock options are specific market holdings valued according to the option to trade an underlying holding at a certain point in the future. • The methodology of options trading is vastly different, and involves a separate system of market making.

22. Technology in Market Function • The advent and increase in the role of technology in the stock market has lead to a new efficiency in market-making. • Computers are now used to trade directly, hedge automatically and instantly to reduce market risk, and most astoundingly, to function as independent market-makers themselves.