Brooklyn Public Library
Mina Ennin Black
About Me
• Former Merrill Lynch Financial Advisormanaged over half a billion in assets
• Almost 10 years experience in Wealth Management
• Licensed Investment Manager
• Creator of the FinancialPhytness Iphone app
• Currently teaching financial & investment
management to groups, companies and
organizations
• http://about.me/minablack/#
• Follow me: @wealthwithmina
AGENDA
• SAVING VS. INVESTING
• WHY INVEST
• INVESTMENT TYPES
• INTRO TO STOCKS
• STOCK EXCHANGES
• HOW DO I MAKE MONEY?
• CHOOSING STOCKS AND TRADING
• HOW DID YOU DO? EVALUATE YOUR
PERFORMANCE
• INTRO TO STOCK MARKET GAME
What Do They Have In Common?
All Are Investors
If you aren’t willing to own a stock for 10 years, don’t even think
about owning it for 10 minutes – Warren Buffett
4 WAYS TO MAKE MONEY
Money Made
By Selling
Your Time
You Work For
Your Money
Interest
Income on
Money Lent
Dividend
Income from
Profits on
Businesses
Owned
Capital Gains
Income
Money that other
Profits of a company
people pay you to
in which you bought
“borrow” your money
an investment.
Buy an investment
at one price and
sell it higher
4 Ways To Make Money
Money Made
By Selling
Your Time
How most people
make money
Interest
Income on
Money Lent
Example: A certificate
of deposit
Capital Gains Example:
Dividend
Income from
Profits on
Businesses
Owned
Capital Gains
Income
Your Money
Works For You
Ex. You bought Apple for $195 a share.
You sell it for $400 a share. The $305
difference is your capital gain.
2 Ways To Grow Your Money
Savings Accounts
Investment Account
What Is Investing?
Investing is putting your money
to use to make money on it.
Some examples of investments
are stocks, bonds, mutual
funds, and real estate.
WHAT’S THE
DIFFERENCE?
Savings
Investments
Goal
Short-term needs or
emergencies
Long-term growth
Products
Savings Account, money- Stocks, Bonds, Mutual
market account, CD
Funds
Risks
None if FDIC insured
Varies depending on
product
Source of Return
Interest you receive from
money you deposited
Interest, Dividends,
Capital Gains, Capital
Losses
Key Advantage
Money is safe and easily
Accessible
Your return outpaces
inflation over long term
Key Disadvantage
Returns usually don’t
outpace inflation
Risk of losing money
Source: IPT
3 Things You Should Know:
Understand Your
Current Situation
Never Invest
Money You Need
Pay off any high
interest debt first
Before You Invest
Set Your Goals: Be Specific
(ex. Save for a child’s college
education in 16 years)
Pick A Date: When will you need
the money? – Time Horizon
Rules for Successful Investing:
Determine Your
Objectives
Evaluate The Risk
Diversification & Asset Allocation
KEY CONCEPTS & TERMS
Time Value
Of Money
Dividend
Investment
Income
Asset
Allocation
Risk &
Return
Rule of 72
Dollar
Cost
Averaging
Risk
Tolerance
Compound
Interest
Stock
Market
Rate of
Return
Leverage
Diversificati
on
Equity
TIME VALUE OF MONEY
A dollar today is worth more than
dollar
Youa Try
It:
tomorrow due to its potential to earn interest
Example
$100 received
today and
invested at 5%
will be worth
$105 in a year
How to calculate: FV=PV (1+i)N
FV=Future Value; i=interest rate
PV = Present Value; N = years
What is the
FV of $500
invested
today at a
rate of 6% in
1 year?
FV = $100(1+.05)1
How to calculate: FV=PV (1+i)N
FV = $500(1+.06)1 = $530
RULE OF 72
A simple way to determine how long it will
take for an investment to double in value
Example
$100 invested
at 5% will
double in
14.4 years
How to calculate:
# of years to double = (72/i)
I = interest rate
How long
will it take
for $1,000
invested at
10% to
double?
Answer: 7.2 years
The Stock Market
An everyday term used to talk about a place
1 “traded”
where stocks and bonds are
Companies
use the stock
market as a
way to raise
money
Did You
Know?
Size of the
world stock
market is $36
trillion?
Slide 17
1
Need to insert examples
Mina Black, 10/11/2012
Diversification
Reducing risk by investing in different kinds
of securities
Limit your risk
exposure to a
specific
investment –
choose stocks
that are made
up of different
industries
A portfolio with
all technology
stocks is not
diversified
A portfolio: a collection of investments
INVESTMENT INCOME
Income from interest payments, dividends, capital gains
collected upon the sale of a security and any other
profit made through an investment
Examples
Dividends,
interest and
rent
It is possible
to live off
your
investment
income
RISK TOLERANCE
The degree of uncertainty you can handle in regard
to a negative change in the value of your investment
What would
you do if you
woke up one
day and your
stock lost
half its
value?
Don’t take
unnecessary
risk
Take the Risk Tolerance quiz
LEVERAGE
Using borrowed capital to increase the
potential return of an investment
Example
Margin:
borrowing
money from
your brokerage
firm to buy
securities
Margin is
EXTREMELY
risky
DIVIDEND
A distribution of a portion of a company’s
earnings.
Quoted in
terms of
dollar amount
each share
receives
Dividends
can be cash,
stock or
property.
RISK & RETURN
The potential return will go up with the more
risk you take on
Must know
your risk
tolerance
Must take on
some risk to
achieve
returns
COMPOUND INTEREST
Interest that is paid on both the interest and
the principal of an investment
Example
If you got 15%
interest on your
$1,000
investment the
first year and
end up with $150
interest
Example(cont..)
If I didn’t take
the money out,
the second year
I would get 15%
interest on both
the $1,000 and
the $150
This is why it’s so important to let your
money grow in your account
EQUITY
For us: a stock or any other security that
represents an ownership interest
Examples
Apple,
Google,
Facebook
There are
almost 9,000
stocks in the
U.S.
ASSET ALLOCATION
Balancing the risk vs. reward in your portfolio
by adjusting percentages
Example
A third of
your money
in stocks, a
third in
bonds and a
third in cash
Invest
across
different
categories of
investments
DOLLAR COST AVERAGING
Invest an equal amount of money at regular
intervals
A good way to
reduce market
risk
Instead of
investing a
lump sum of
$1,000 now,
you can invest
$100 every
month for 10
months
RATE OF RETURN
The amount of revenue an investment generates
over a given period of time as a percentage of the
original investment amount
Example
Earlier
example, the
$1,000
investment &
$150
investment
income
15% is the
rate of return
Total Return: actual rate of return of an investment. Includes
interest, capital gains, dividends
Real Return: return on an investment adjusted for inflation
STOCKS
Stocks: Shares of ownership in a company
What Does Stock Ownership Mean?
Voting Rights
Owning shares in Apple doesn’t mean you can go
help yourself to free Iphones at the Apple store.
WHY DO COMPANIES ISSUE STOCK?
To raise money to start a business or grow a business
To help pay for ongoing business expenses
They don’t have to repay the money
WHY DO PEOPLE BUY STOCK?
We get income from dividends (not always!)
The stock price could go up
2 Types of Stocks
Common
Preferred
Majority of stock issued
No voting rights
Ownership in company
Claim on profits
Investors guaranteed fixed
dividend forever
In bankruptcy, preferred
shareholders are paid before
common
Closer to debt than stock
One vote per share
Highest return
Most risk (bankruptcy)
Variable dividends
Never guaranteed
How are stocks classified?
BLUE
CHIPS
Stocks issued by well-established
companies with sound financial
histories; Dow Jones
Growth
Stocks
Shares of companies with the
potential to generate aboveaverage revenues and profit
growth
Income
Stocks
Pay out a relatively high
percentage of their earnings in the
form of dividends
Value
Stocks that are cheap in relation to
profits, sales, cash flow or the
value of the company’s assets
How are stocks classified?
Defensive
Companies whose sales of goods
and services hold up in bad
economic times
Cyclical
Companies whose sales and
earnings are highly sensitive to
the ups and downs of the
economy
Foreign
Shares of companies that provide
exposure to overseas currencies
Market
Cap
Large cap, Mid-cap, Small cap –
refers to the overall value of all
shares of the company’s stock
HOW DO STOCKS TRADE?
On the Stock Exchange
Marketplace where brokers who
represent investors meet to buy and
sell securities.
Two Primary Exchanges:
New York Stock Exchange
NASDAQ
**We use indexes and averages to track overall direction of the
market
NEW YORK STOCK EXCHANGE
New York Stock Exchange
Founded in 1792
Face-to-face trading floor
Broker to specialist to broker
Stocks traded on NYSE: GE,
McDonald’s, Coke, WM
Floor of NYSE
NASDAQ
“Virtual” Over-the-counter
-No central location
-No floor brokers
-Trading done through
computers
-Established in 1971
Tech-heavy listings –
Example: Facebook
Dow Jones & S&P 500
Dow Jones Industrial Index
-Oldest and best known index
-Index of 30 widely held
stocks
-All companies are major
factors in their industries
Standard & Poor’s 500 index
-Leading companies from all
sectors of the economy
-Benchmark for majority of
growth mutual funds
WHERE DOES STOCK PRICE
COME FROM?
Stock price is
Tied to how much investor’s perceive the entire company
to be worth right now
AND
How much the company is going to EARN in the future
Market Capitalization (market cap) = how much the total
company is valued at
Stock Price * Shares Outstanding
Pay attention to this and NOT stock price
WHAT CAUSES STOCK
PRICES TO CHANGE?
The easy answer…
Supply and Demand
More wanting to buy, less wanting to sell
Less wanting to buy, more wanting to sell
HOW DO YOU MAKE
MONEY?
Investors make money in stocks in two ways:
Dividends
Companies may make payment to shareholders as part of the
profits.
Capital Gains (CG)
Investors purchase shares in companies with the expectation
that the price of the shares will increase. This increase in share
value is a capital gain
Reading Stock Tables
Ticker Symbol
A unique identifier (usually letters) that
represent a particular security on an
exchange.
Source: Yahoo Finance
Price
The current or price of the stock.
Sometimes this will be listed as “Last
Trade” to let you know the last price
the stock traded at.
Source: Yahoo Finance
Change in Price
StocktheTables
TheReading
difference between
last trade
price and the price before that
Source: Yahoo Finance
The Exchange
You
can identify
which Tables
exchange the
Reading
Stock
stock quote you’re viewing is trading
on
Source: Yahoo Finance
Previous Close
The price that the last share of stock
sold yesterday (or the last day of
trading) sold at.
Source: Yahoo Finance
Open
The open is the price of the first share
of stock sold today
Source: Yahoo Finance
Bid & Ask
A bid is the highest price that a principle brokerage firm
has announced it’s willing to pay for a share of a specific
stock at a specific time. The ask is the opposite: it’s the
lowest price that a firm has said it’s willing to sell a
particular stock at
Source: Yahoo Finance
1Y Target Estimate
An analyst’s projection of what the
price for a single share of this stock
will be one year from today
Source: Yahoo Finance
Beta
Reading
Tables
The measure
of how aStock
particular
stock’s price moves relative to the
market as a whole.
Beta = 1: means the stock’s price moves exactly with the overall market
Beta > 1: means the stock’s price is more volatile than the market
Beta < 1: means the stock’s price is less volatile than the market
Source: Yahoo Finance
Next Earnings Date:
Expected date of when the company
will release their next earnings
Source: Yahoo Finance
Day’s Range
The day’s range gives you the range
that a stock’s price has varied
throughout the course of the day
Source: Yahoo Finance
52wk Range
Reading Stock Tables
The range of prices a stock has sold
for over the course of the last year
Source: Yahoo Finance
Volume
A stock’s volume reflects the total
number of shares of that stock that
have been traded throughout a single
day
Source: Yahoo Finance
Avg Volume (3m)
The average volume over the past three months
of a stock. Knowing the average volume can
help you decide when the daily volume is active
enough for you to take notice
Source: Yahoo Finance
Market Cap
Market capitalization estimates the
total dollar value of the company who’s
stock is being traded
Source: Yahoo Finance
P/E (ttm)
The price to earnings ratio reflects the
relationship between the price per share and the
income earned per share by the company in
which the shares are held.
A higher P/E points to a more expensive stock because an
investor pays more per unit of
TTM: trailing twelve months
Source: Yahoo Finance
EPS
Earnings per share is the amount of money
that you would have earned if you
purchased a share of this stock last quarter
and sold it today
Source: Yahoo Finance
Div & Yield
The dividend is the payment the company
pays to shareholders based on its profits.
The yield is the dividend expressed as a
percentage of the price per share
Source: Yahoo Finance
Chart
Reading
Stock Tables
This is the information such as price;
volume, trade history in a chart form
Source: Yahoo Finance
Exchange Traded Funds
A security that tracks an index or a basket of assets but
trades on an exchange
Usually identified by 3 call letters for the symbol
SELECTING STOCKS
THINGS TO THINK ABOUT
•
•
•
•
•
NO ONE WAY TO PICK STOCKS!
NO FOOL PROOF FORMULA
COME UP WITH A STRATEGY: A method for picking your stocks;
Are you interested in a specific industry? Sector?
Don’t put all of your eggs in one basket
“Buy what you know. Stock tips are all around us. You can
spot a good stock before Wall Street does.” –Peter Lynch
SELECTING STOCKS
STRATEGIES FOR STOCK SELECTION
1. Go With What You Know: You see
companies growing all around you.
1. Markets: Current and future – A project must
have customers today and even more
tomorrow or it isn’t growing.
3. Economic Cycle: Is the economy expanding
or slowing?
3. Avoid Obvious Risks
3. Selecting Stocks for the Stock Market Game:
STRATEGIES FOR STOCK SELECTION
1. Go With What You Know: You see
companies growing all around you.
•
•
•
•
What products do you really like?
What is popular among your friends?
Who makes it?
Do you think it will continue to be popular?
Make Sure To Do Your Homework: know what
the company does and how it’s doing
financially – look at news; their annual reports
If You Can’t Explain What The Company Does,
Then You Shouldn’t Buy It
STRATEGIES FOR STOCK SELECTION
2. Markets: Current and future – A project must
have customers today and even more tomorrow
or it isn’t growing.
• Does almost everyone own the product the
company makes?
• Stocks of a rapidly growing company is more
likely to increase in price.
• What are the prospects for the company
overseas? Think McDonald’s, Starbucks.
• Demographics also affects current and future
markets: Will a large percentage of the
population want this product? (ex. Facebook)
STRATEGIES FOR STOCK SELECTION
3. Economic
slowing?
Cycle: Is the economy expanding or
• How do you think the economy is doing? Is it Growing or
slowing?
• GROWING ECONOMY: People who want jobs , have them
• SLOWING ECONOMY: High unemployment; Companies cut
back
• EXPANSION: Cyclical stocks in industries like cars,
appliances, raw materials like aluminum, steel, cement,
tools & equipment offer much higher returns and growth
potential
• Recession: stocks in DEFENSIVE industries:
medicines, food, clothing, public utilities, etc) generally
decline less than stocks in other industries.
STRATEGIES FOR STOCK SELECTION
Avoid Obvious Risks
• Beware of front-page stories
• When a stock or company gets the headline that means
everyone else knows about it too
• You may want to stick with boring stocks
• Evaluate Current Industry Conditions: Industries
include: transportation, automotive, food and beverage,
retail/apparel, health care, entertainment, communication,
utilities, financial and others
Do current events affect the businesses in the industry
you’d like to invest in?
Will technology innovations affect your industry?
STOCK MARKET GAME
www.marketwatch.com/game/bpl---adult-investing-2014
pssword: bpl2014
BUYING STOCKS
You buy stocks through a broker
Markets are open from 9:30 to 4pm
Full service or discount broker
Commission: the fee you pay the broker to buy or
sell the stock
STOCK SCREENERS
Use a stock screener to narrow your selection
http://screener.finance.yahoo.com/stocks.html
HOW TO PLACE AN ORDER
• MARKET ORDER: You buy or sell the stock at its current price
• LIMIT ORDER: you specify the price you will buy or sell the stock
price at – when and if the market price reaches your limit-order
price, the order is executed
• SELL SHORT: borrow from the the brokerage house and sells to
another; Buy To Cover: must buy those shares back at some point
in time and return them to the lender.
CREATE A WATCHLIST
A way to keep track of stocks/securities you’re interested in
EVALUATING PERFORMANCE
Real Return & Total Return
Real Rate of Return: Subtract inflation from nominal rate of return
Total Return: Actual rate of return. Includes interest, capital gains,
dividends and distributions
WHEN TO SELL
Must know when to get out
Fundamentals change:
Dividend is cut
You reach your target price
What Is Your Return?
THE END