8/23/2009
STOCK FACTS
STOCKS
Definition
--Ownership interest in a
corporation
STOCK FACTS
• Sold in shares
• Shares = individual units of ownership
• Shareholders—investors who purchase
stock
• Shareholders—part owners
• Shareholders—may make $
• Shareholders—may lose $
• Stocks may help you achieve longterm financial goals
• Stock prices rise and fall
• Good management reduces risk
HOW ARE STOCKS TRADED?
• Initial public offering—investors
buy directly from the company
• Later—investors usually buy from
owners who want to sell stock
• Stock Market—organized trading of
stock
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8/23/2009
WHERE ARE STOCKS TRADED?
• Stock Exchange—trading floor
• NYSE—New York Stock Exchange
(oldest stock exchange; largest
and wealthiest companies)
• AMEX—American Stock Exchange
(second oldest stock exchange;
small and medium-sized
companies)
**requirements must be met to be listed
on an exchange
STOCK MARKET REGULATION
• Securities and Exchange Commission
--requires disclosure of accurate and honest
information
--brings lawsuits against fraudulent
companies
--oversees activities of the exchanges, OTC
stocks, investment advisors, and others
involved in buying/selling stock
STOCK FACTS
• Over-the-counter stocks—not
listed on any stock exchange
• Traded through phone and
computer
• Nasdaq—largest electronic
network; lists stocks
RETURNS ON STOCKS
• DIVIDENDS
payment to
shareholders that
represents a portion
of the company’s
net profits
**usually paid 4 x yr.
• CAPITAL GAINS
AND LOSSES
capital gain--buy
low/sell high
capital loss—sell
lower than
bought
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STOCKBROKER
• Individual or firm that will buy and sell stock
for clients
--full service brokers-buy/sell, advise
--discount brokers-basic service; cost much
less
On-line brokers help find info for clients.
RISKS OF OWNING STOCK
•
•
•
•
Company’s Health
Industry Trends
Economic Factors
National and World Events
OTHER WAYS TO BUY STOCK
• 401(k) Plan
• ESOP (employee stock option
program)
• Direct stock plan (buy directly from
company)
TRACKING THE STOCK
MARKET
• INDEXES—way to measure overall
price changes in the stock market
– Nasdaq Composite Index—tracks 5,000
domestic stocks
– Dow Jones Industrial Average—tracks 30
large, well-known companies (financial
services, technology, retail, entertainment,
and consumer goods)
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8/23/2009
MINIMIZE THE RISK
TYPES OF STOCK/RISKS
• COMMON STOCK • PREFERRED STOCK
– Voting rights
– Dividends vary
– Risk varies
– Return varies
– No voting rights
– Dividends fixed
– Less risk
– Fixed return
•
•
•
•
Long-term investment
Diversified portfolio
Research and monitor
Maintain discipline
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