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INVESTING IN THE STOCK MARKET
What is Stock?
Ownership in a _________ company. It is considered public and not private because anyone can own shares.
When you own stock you are known as a _____________

Sold in shares; ex: McDonald’s $56.10 per share

1 share equals __ vote

How many votes does Bill Gates have?
Issuing stock

IPO: Initial Public Offering. Title for a stock that is introduced to the public market.
Ex: Google (GOOG) was an IPO in 2004, _________ in 2007 & _________ in 2008.

Companies who issue stock are registered as corporations and offer the sale of stock to the _______.

The sale of company stock raises ________ (money) for company operations

Going public makes it easier for company shareholders to sell their shares by creating a public market for the
company’s stock. Get a better price!

Loss of confidentiality: Going public subjects a company to ____________ and ____________financial reporting
requirements from the __________________________. Complying with these requirements increases the
company’s costs of doing business.
Owning stock

Once publicly issued, shares of stock are available for all who can afford the price

Trade (buy or sell) among the entire public population.

To sell you must find someone willing to buy….at your price
-a _______________ is paid for this service
Stock Brokers
“Brick and Mortar” locations

Ex: _________________,_______________ as well as many commercial banks

PROS:

CONS:
Online brokers

Ex: __________________________________________________________

PROS: ________________________________________________________

CONS: ________________________________________________________
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Two ways to make money on stocks
1. Capital Gains:

Profit earned from the sale of stock

Buy low sell high

Ex:
bought 10 shares of XYZ co. @ $10 = $100;
sold 10 shares of XYZ co. @ $12 = $120.
profit of $ ________ .
2. Dividends

Percent of company profit paid to shareholders

Dollar amount paid varies depending on stock price

Ex:
XYZ co. pays a 5% dividend, stock price is $100, you own 10 shares;
$100 X .05 = $5; 10 shares X $5 per share=$50
What affects prices?
Supply & Demand-greatest determinant

Supply: number of _________________

Demand: number of people ___________ and __________ to buy the stock

o
Is the stock affordable?
o
You may want to buy Google but can you afford to pay $_______ per share?
Company news: mergers, acquisitions, new products, layoffs, recalls, lawsuits, resignations
o
Public image-good or bad?
o
Ex: Merck’s Vioxx recalled & lost $253.4M lawsuit (Aug. 2005)

o
stock dropped from $31 to $28, a 10% decrease.
Enron:
Securities Exchange-where buyers and sellers meet to _________ securities.
NYSE: __________________________________

Largest U.S. exchange

Companies listed: _________,______________,_____________,___________
NASDAQ (National Association of Securities Dealer’s Automated Quotations)

Computerized system that displays quotes

Companies listed: ___________,_____________________,________________
-How are NASDAQ and NYSE stocks different?
Smaller exchanges exist in various cities; Chicago, Cincinnati, Denver, Salt Lake
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Stock Indexes-used to judge the performance of investments or a group of investments
Dow Jones Industrial Average (^DJI) a.k.a. the DOW

___ large, actively traded blue-chip stocks from the NYSE

Primarily industrial companies yet now more diversified

Listed stocks change based on performance

o
Recent stocks removed:
o
Recent stocks added:
Used as the major gauge to judge the overall performance of the market
S & P 500

_______ widely held companies

S & P stands for: ___________________________________
NASDAQ Composite Index.

_________________ exchange contains mostly

Stands for:
Stock Market Cycles
Bear Market

Prolonged period of falling stock prices

Often associated with overall _______________ in the country & stock market
Bull Market

period of charging, __________ prices

is often associated with an overall _______________ in the country & stock market
Type of Stock
Common Stock:

________ gains; pays _________ dividend (depends on _________ of the stock); Carries _____ rights
Preferred Stock:

__________ gains; Pays fixed dividend (often lower than common); Carries no voting rights

Less risk-if company fails, preferred stockholders are paid off before common.
Blue Chip:
Penny Stocks:
Growth Stocks:
Income Stocks:
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McDonald’s Stock Price and Information
MCDONALDS CORP (NYSE:MCD)
Last Trade:
29.74
Day's Range: 29.73 - 29.74
Trade Time:
9:31AM ET
52wk Range:
23.01 - 29.98
Volume:
149,500
0.11 (0.37%)
Change:
Prev Close:
29.63
Avg Vol (3m): 3,893,804
Open:
29.74
Market Cap:
37.36B
Bid:
N/A
P/E (ttm):
21.36
Ask:
N/A
EPS (ttm):
1.392
1y Target Est:
33.79
0.55 (1.86%)
Div & Yield:
Fiscal Year Ends:
31-Dec
Most Recent Quarter (mrq):
30-Sep-08
Annual Dividend:
0.55
Shares Outstanding:
1.26B
Dividend Yield:
1.86%
Beta:
0.772
Dividend Date:
1-Dec-08
Revenue (ttm):
Last Split Factor (new per old)²:
2:1
Profit Margin (ttm):
Last Split Date:
08-Mar-99
Key Terms
Last Trade
Bid/Ask:
Ticker Symbol:
52 week range:
EPS:
P/E ratio:
-Circle one: The lower/higher the better?
Market Capitalization:
Small cap: under $______________
Example:
Mid cap: between $_____________ and $____________
Example:
Large cap: over $_______________
Example:
Shares Outstanding:
Volume:
Dividend & Dividend Yield:
Stock Split
Beta:
18.19B
9.76%
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Stock Classifications
Blue Chip:
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Larger well-known & established corporations, very unlikely to fail.

Low risk = low, steady return.

Ex: Proctor & Gamble (PG), Johnson & Johnson (JNJ), Coke (KO),
Income stocks

History of paying high dividends

Few profitable investment opportunities
Ex: citigroup, BP, Bank of America
Growth Stocks

Profits reinvested to help business grow

Are purchased by investors for future capital gain
Ex: urban outfitters (urbn), panera bread (pnra)
Penny Stocks

Sell for less than a $5 (by Wall Street definition)

All traded on OTC (over-the-counter) markets by phone or computer, such as the NASDAQ.

Very risky yet high possibility for return.
Ex: eToys.com (ETYS) is at $3.81; CBS MarketWatch (MKTW) at $4.53
Securities Exchange-where buyers and sellers meet to trade securities.
NYSE (New York Stock Exchange)

Largest U.S. exchange

Must meet minimum number of shares and market cap. requirements

Companies listed: Pepsi, McDonalds, GE, Johnson & Johnson
NASDAQ (National Association of Securities Dealer’s Automated Quotations)

Computerized system that displays quotes

Must have 100,000 shares and worth $1 million

Companies listed: Microsoft, Cisco, Google
Smaller exchanges exist in various cities; Chicago, Cincinnati, Denver, Salt Lake
Stock Indexes-used to judge the performance of investments or a group of investments
Dow Jones Industrial Average (^DJI) a.k.a. the DOW

30 large, actively traded blue-chip stocks from the NYSE

Primarily industrial companies yet now more diversified

Listed stocks change based on performance
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
Used as the major gauge to judge the overall performance of the market
S & P (Standard and Poor’s) 500

500 widely held companies
NASDAQ Composite Index
Stock Market Cycles
Bear Market

Prolonged period of falling stock prices

Often associated with overall pessimism in the country
Bull Market

period of charging, rising prices

is often associated with an overall confidence in the country
Other Investment Methods
Dollar Cost-Averaging

Purchase the same dollar amount of shares (ex: $100 worth) at regular intervals

Investors don’t have to worry about timing the market

Usually averages out to paying less per share than the average share price.
DRP (Dividend reinvestment Plan)

Use dividends to reinvest and buy stocks directly from the company

Avoid brokerage and other processing fees
Buying on Margin

Borrowing money from the broker to buy more stock than you can afford

You are betting the stock will go up

Pay interest to your broker on the amount borrowed
Short-Selling

Selling stock borrowed from a broker that must be replaced at a later time.

You are betting the price will drop and then you can buy back at a lower price

No broker fee for selling short-just the normal trading commission
Other terms

Portfolio: the group of holdings or stocks

Diversification: spreading risk by investing in different industries, markets or in both stocks, bonds, savings
accounts and cash.

Sector: refers to putting stocks into different categories or sectors based on their industry.
-Ex: food & beverage, transportation, aerospace
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Stock Spilt: split outstanding shares into more shares. Creates more shares at a lower price.
-Ex: KO 2 for 1 (1996) GE 3 for 1, (2000); MSFT 3 for 2 (1991)

Reverse Spilt: reverses the number of shares so there are less outstanding shares at a higher price.
-Ex: PlanetRX.com (PLRX), for example, has traded below 50 cents a share for weeks and is planning an 8-for-1
reverse split to hike its stock price.

P/E ratio: Price of the stock divided by the earnings per share (eps). Used as a gauge to determine if the stock is
over/undervalued. Lower P/E the better.