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Introduction to Investing

Introduction to Investing. The Basics of Investing. 2 Goals of a Company. 1) Maximize Profits (each year) 2) Grow Profits (over time). Companies that grow PROFITS the fastest. have the best stock performance. Price of a Share of Stock Determined by Supply & Demand.

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Introduction to Investing

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  1. Introduction to Investing The Basics of Investing

  2. 2 Goals of a Company 1) Maximize Profits(each year) 2) Grow Profits(over time) Companies that grow PROFITS the fastest have the best stockperformance

  3. Price of a Share of Stock Determined by Supply & Demand • Stocks are constantly searching for a NEW equilibrium • macroeconomic & microeconomic factors affect stock prices Ford Motor Company current events

  4. Building a 100,000 Portfolio • How many shares? • Depends on how many dollars you want to invest • What types of companies? • Many sectors to choose from • Do I spend all of my $100,000 • No more than $20,000 in one stock!

  5. You must earn more than the rate of inflation to raise wealth Stocks & Bonds are common investment options Bonds: a loan to a Gov’t or business where you earn interest Stocks: You become part owner in a company Why Invest Money? Your Money U.S. Gov’t 5-Year Bond $1,000 $20 per year Plus $1,000 in 5 years You get 2% interest per year

  6. 3 Primary Asset Classes Average return per year 1926 - 2000 • Stocks = long terminvestment (5-years or longer) • Bonds = medium term investment ( 1-3 years) • Bank CD’s = short term investment (30 days to 2 years) The longer the holding period----the more risk you should take!

  7. The Power of Compounding

  8. I need MONEY! • How do YOU borrow Money? • How do COMPANIES borrow money?

  9. What is a share of stock? • It is ownership of a small piece of the company.

  10. Why Companies Issue Stock • To raise money to expand/ run business • Investment Banks help companies issue stock • IPO = initial public offering • When a new company sells stock for the 1st time

  11. Two Stages of Selling Shares • The Primary market: • Company sells shares of stock to investors • --Example: PLX Technology Initial Public Offering (IPO) 2. The Secondary Market Investors buy & sell shares to other investors

  12. Key Stock Indices • S&P 500 Index • Largest 500 companies by $ value • Dow Jones • 30 very large American companies • Nasdaq • primarily technology stocks WHY INDICES: There are over 5,000 stocks! Indices give the average Performance of the overall market

  13. Stocks in Dow Jones Index

  14. Industry Type Sectors of Stock Market • Technology • Transportation • Retail • Financials • Energy • Health Care

  15. Market Capitalization Dollar value of a company = Current price per share of company’s stock X number of shares the company has issued Large Cap --over $10 Billion Mid Cap --$2-10 Billion Small Cap --$300 Million-$2 Billion

  16. Delta Air Lines Cheesecake Factory Amazon

  17. Recent Stock Market History • Stock market hit a high in March of 2000 • 3 years of negative returns followed [2000,2001,2002] • 2003 SP500 +28.6% • 2004 SP500 +10.8% • 2005SP500 +4.9% • 2006 SP500 +15.7% • 2007SP500 +5.5% • 2008 -37.0% • 2009 +26.0% • 2010 +15.0% • 2011 +0.0

  18. Top 10 things to know about Stocks • Reading:

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