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Introduction to Stocks

Spring 2014 Accounting 101 `. Introduction to Stocks. Basics of Investing I. K. Robinson. What is a stock?. Common stock Gives you a “share” of ownership of a publicly traded company Stock ownership Voting rights Claim to assets (behind debt holders) and earnings

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Introduction to Stocks

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  1. Spring 2014 Accounting 101 ` Introduction to Stocks Basics of Investing I K. Robinson

  2. What is a stock? • Common stock • Gives you a “share” of ownership of a publicly traded company • Stock ownership • Voting rights • Claim to assets (behind debt holders) and earnings • Potentially entitled to dividends

  3. What is a stock? • Ticker symbols • Set of letters that represent a security traded on an exchange • Ex. MSFT, GS, AAPL, MA, BUD, LUV • Stock quotes • List of prices for a stock at a particular point during the trading day • Stock tickers • What do those green and red numbers mean?

  4. Basic Stock Quote

  5. More Stock Quotes

  6. Different Types of Stock • Preferred Stock • No voting rights to company issues • Issued fixed dividends forever – main form of return • Common Stock • Majority of stock we see and hear about in the news • Ownership of the company • Entitled to portion of the earnings • Earn returns mainly through capital gains • What are capital gains? • Increase in asset value relative to the purchases price • Not realized until asset is actually sold • Example.

  7. Stocks vs. Bonds • Stocks are equity • Generally considered riskier • Quite possible to lose a significant portion, if not all, of your money • Potential for high returns • Bonds are debt • Lower and usually fixed return • Higher claim than stockholders • What does this mean?

  8. What Can Cause Stock Prices to Change? EASY!  Supply and Demand!But…what affects supply / demand of a stock?

  9. What Can Cause Stock Prices to Change? • Earnings & growth expectations • Positive / negative news • Economy sentiment • Investor sentiments & attitudes

  10. Two Markets • Primary Market – market in which investors have first opportunity to buy newly issued shares • Initial Public Offering (IPO) • First time that company offers its shares to public markets (securities bought directly from company) • Where private companies become public • Secondary Market – investors trade already-issued shares of companies with each other • Ie. The stock market • Trading of a company’s stock DOES NOT DIRECTLY involve the company financially

  11. How Stocks Are Traded • Major exchanges • Lists stocks (and other securities), sets policies for how stocks are traded • New York Stock Exchange (NYSE) • American Stock Exchange (AMEX) • National Association of Securities Dealers Automated Quotation • Only “publicly traded companies” are listed

  12. Markets Indices • S&P 500 • 500 stocks chosen by Standard & Poor to represent US stock market • NASDAQ Composite--With approximately 3,700 companies and corporations, it has more trading volume than any other stock exchange in the world, many of which are technology and electronics • Dow Jones Industrial Average • 30 most significant stocks traded

  13. Stocks Markets & Animals • Bull Market • When everything in the market is going great and stocks are generally heading upwards • Bear Market • When everything is NOT GOOD and stocks are generally headed downward • NOTE: Nothing lasts forever! Good times and bad times will end at some point http://www.investopedia.com/university/stocks/stocks7.asp

  14. Brokerages • Need a medium to trade through – this is where brokerages come in • Criteria • Full service vs. discount • Fees (commission) • Services / tools • Minimum balance

  15. Opening an Account • Not a hard process- most of it just some paperwork and mail • Sign-up online and download forms • Mail checks, forms, and copy of ID • Accounts created within a couple of days • What you will need: a computer, starting capital, and investing know-how

  16. Brokerages • Some links for brokerage comparisons • Find something that works for what YOU need • No one broker that is best for all investors • http://www.investingonline.org/gso/broker_ratings.html • http://www.consumersearch.com/www/internet/online-brokers/ • http://www.stockbrokerguide.com/ • http://online-stock-trading-review.toptenreviews.com/

  17. Different types of Orders • Market Order • Order to buy/sell at any given time. • Limit Order • Order executes to buy / sell at specified price of better (lower). Limit orders usually cost more, but useful for getting specified price • Stop Order • Order executes when the price surpasses a particular point, which helps buy or sell at a particular price. Limiting loss or locking profits

  18. Basic Idea Behind Investing in Stocks • Buy your stocks when the prices are low. • Sell your stocks when the prices are high.

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