Stocks
By: Stephen Comeau
What are Stocks?
• A stock is a share in the ownership of the
company.
• Stocks are claims on a companies earnings and
assets.
• If you buy more stocks you have more ownership
in a company.
• Shares, Equity and stock are all the same thing.
• http://www.investopedia.com/university/stocks/st
ocks1.asp
Shareholders
• When you buy a stock you become a
shareholder or a person who has a partial claim
to a company.
• This means that you own a very minute piece of
a company.
• You also have a very small (very very small)
percentage of influence over the stock.
• http://www.investopedia.com/university/stocks/st
ocks1.asp
Stocks Certificates
• Stocks are represented
by Stock Certificates.
• This is a piece of paper
that proves that you have
ownership of a company.
• Today these are not
handed out anymore in
paper form, but are
handed out electronically
to your brokerage.
• http://www.investopedia.c
om/university/stocks/stoc
ks1.asp
Stock Brokers
Being a Stock Broker is on of the higher paid jobs in the financial
services. This job has no limit to income, their income just depends
how hardworking they are and if they are extremely lazy or not.
Earning money as a stock broker depends on how many consumers
you have in your portfolio and it also depends on how you set up your
contract with the customer.
If you set up a contract with a customer that wants to buy a $100 dollar
stock, you can set up the contract to earn a certain percentage of that.
Normally if your a stock broker you don't want to set up and extremely
high percentage because the customer has to earn money as well and
you want to attract more customers.
Brokers make more money when they sell packaged products, which is
a package of what they will do for you for a certain price.
http://www.ehow.com/about_5515783_much-averagestockbrokers-commission.html
Board of Directors and Stocks
• The Board of Directors are people that are
elected by a corporation's shareholders.
• They look over the management of the
corporation.
• The board is normally paid in cash or STOCK.
• They are responsible for legal activities of the
corporation.
• http://www.investorwords.com/511/Board_of_Di
rectors.html
Stocks Insured?
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Stocks are not insured by the government.
Stocks are insured by the SIPC (Securities Investor Protection Corporation) to a
limited extent.
When a company collapses and you are stuck with the stocks that you bought the
SIPC will step and try to return some of the money you have lost.
However the SIPC isn’t able to help everyone, but it does cover up to 99% of people
(but not for total loss of money).
When a brokerage firm fails owing customers cash and securities that are missing
from customer accounts, SIPC usually asks a federal court to appoint a trustee to
liquidate the firm and protect its customers. With smaller brokerage firm failures,
SIPC sometimes deals directly with customers.
The SIPC covers stocks and bonds held at a brokerage firm. However, It does
not cover Commodity future contracts (unless defined as customer property under
the Securities Investor Protection Act), currency and Fixed annuity contracts.
http://www.sipc.org/who/sipcmission.cfm
More SIPC
This Company also provides Brokerage Identity theft so if a
broker steals your identity and buys stocks with your money
you will be protected by the SIPC.
The SIPC is composed of brokers and Dealers who are
registered under the Securities Exchange Act of 1934, and all
members of the NASD.
The SIPC is a non-profit membership corporation established
by Congress that insures securities and cash in customer
accounts up to $500,000 (up to $100,000 in cash) in the event
of brokerage bankruptcy.
Why Do Companies Issue
Stocks
• Companies issue stocks in order to raise large
amounts of capital quickly.
• Other sources of income have restrictions and
some companies need money fast.
• http://www.ehow.com/about_4571014_whydoes-company-issue-stocks.html
Do all Companies Issue Stocks?
• No, not all companies issue stocks because they choose
not to.
• Companies are not forced to issue stocks to the public
and they never have to if they don’t want to.
• Some companies don’t have the expanding power to
release stocks and those that do probably want to keep
the power within the company because when you issue
stocks you have to release a certain percentage of
power to the public.
• http://www.qwoter.com/college/TradingBasics/why_do_companies_issue_stock.html
Risks of Stocks
• Risks can be very dangerous when it comes to
stocks because there are no “guarantees when it
comes to individual stock.”
• Companies do not always pay out dividends.
• All stocks are vulnerable to bankruptcy as well.
• If you take a huge risk in stocks you may loose
all you had put into those stocks.
• http://www.investopedia.com/university/stocks/st
ocks1.asp
How Can you buy Stocks?
• Before you even consider buying stocks you need to educated
yourself about them.
• In order to buy a stock you are going to need knowledge of the
company and you are going to need a broker to handle your
transactions.
• Then you are going to need to know what you want in your
brokerage account.
• After that you have to open your account and once your
account is open you may research the stocks you are looking at
and proceed to buy them through the broker.
• One way is to set up an on-line brokerage account. It’s cheap
and simple to do, plus you’ll learn about investing first hand.
Another way is to buy stocks directly from a company through a
direct purchase plan. Investing your money in stocks has never
gotten easier.
• http://www.ehow.com/how_2321903_buy-stocks-broker.html
• http://www.ehow.com/how_544_buy-stocks.html
Types of Different Stocks
• There are two types of stock, which are Common Stock and Preferred
Stock.
• Common Stock- This type of stock is the type of stock everyone refers to
when talking about stocks. Stocks are almost always issued as a
Common Stock.Common stockholders are on the bottom of the priority
ladder for ownership structure. In the event of liquidation, common
shareholders have rights to a company's assets only after bondholders,
preferred shareholders and other debtholders have been paid in full.
• Preferred Stock- These type of stocks are somewhat like common
stocks except, when you buy these types of stocks they don’t come with
the same voting rights. These types of stocks also come with a fixed
dividend. Also the company who issued this type of stock can buy the
stock from the shareholder at any time.
• Common Stock and Preferred Stock are normally the two type of stocks
that you will see. However, companies can modify different classes of
stock. Companies will do this when they want voting power to remain
with a certain group.
• http://www.investopedia.com/university/stocks/stocks2.asp
How are Stocks Traded?
• Stocks are traded through a stock
exchange. This is where people meet up
to debate the prices of the stock and then
sell them.
• These exchanges can be made physically
or over the internet.
• http://www.investopedia.com/university/sto
cks/stocks3.asp
Stock market affecting the
Financial world
• When people buy stocks this affects how companies are doing. If a
company is getting a lot of investors then their stock will stay high,
but once that stock starts to drop a little bit and everyone sells at
once then the stock will drop like a stone.
• If people drop all their stocks like crazy it will cause the market to
drop and also the US dollar.
• With the dollar dropping we cannot buy goods from other countries
because they have a stronger currency.
• If the stock market does extremely well then the dollar will rise and
make our goods harder for other countries to purchase which then
lowers our profit from exports.
• This cycle happens over and over and over with every fluxuation of
the stock market.
• http://www.economicshelp.org/blog/stock-market/how-does-thestock-market-effect-the-economy/
Fees when buying and selling
stocks
• The fees of buying a stock are the fees you have to pay a brokerage
to allow you to buy that stock. This is called Dividend Reinvestment
Plans.
• There is also maintenance fees on accounts that are inactive for a period of
time. Also there is order-handling fees and higher rates for limit orders.
• All of these fees contribute to just staying in the stock market game.
• When you sell there is a transaction fee from your broker that is the same as
buying stock. After you pay this fee the rest of the money is yours.
• Other Fees can also range from $1- $250 depending on what you need to
do. Fees such as Transferring in and out cost $60, while another fee
Depositing cost $250. Also there is a high commission charges.
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http://www.usatoday.com/money/perfi/columnist/block/2002-09-30-brokerage-services_x.htm
http://en.wikipedia.org/wiki/Stock#Selling
http://www.scottrade.com/online_trading_commissions/investment_fees.asp
How to Read a Stock Table
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A stock table will look something like this.
A stock table is fairly easy to read once you have
researched these tables. The First and Second Column
stand for the 52 week high and low for a company.
The Third column is the name of the stock.
The 4th column is the ticker or stock symbol.
The 5th column is for dividends that some companies
pay. If the column is blank the company does not pay
dividends.
The 6th Column is the % yield of the dividend.
The 7th column is the price/earnings ratio.
Column 8 is the Trading volume which list how many
stocks were sold that day, but they are listed in the
hundreds so to get an actual figure you have to add two
zero’s to the end.
The 9th and 10th columns are the high and low points of
the day for the stock.
The 11th column is the closing price of the stock for the
day.
Finally the 12th column is the net change in the stock.
This means that this number is the change in price from
today’s closing price compared to yesterdays.
http://www.investopedia.com/university/stocks/stocks6.a
sp
What causes stock prices to change?
• The consumers cause the prices of stock to
change.
• When people buy more of a stock than people
are selling the stock it causes the stock price to
rise.
• When people sell more than buy the price of the
stock falls.
• This is called supply and demand.
• http://www.investopedia.com/university/stocks/st
ocks4.asp
Where are stocks traded and what
are Stock Indexes?
• Stocks are traded on exchanges.
• These exchanges can happen in person at a trading floor or online.
• The purpose of exchanges are so people can agree on a stock price
and then make the transaction.
• The largest exchange room is the New York Stock Exchange.
• The NYSE is not the only stock exchange in the world, actually the
NYSE is just one stock exhcange in the thousands more that are out
there. There are about 51,000 stock exchanges that are active.
• A stock index is measuring a part of the stock market.
• These are found normally being cited by news and financial services
firms.
• These news and financial service firms use these indexes to point out
the performance of the stock portfolio.
• http://en.wikipedia.org/wiki/List_of_stock_exchanges
http://www.investopedia.com/university/stocks/stocks3.asp
• http://www.google.com/search?hl=en&rlz=1T4GGLD_enUS387US38
7&defl=en&q=define:Stock+indexes&sa=X&ei=bL0lTbSREIWdlgfjyM
X4AQ&ved=0CBsQkAE
What is the NASDAQ?
The NASDAQ, also known as the NASDAQ Stock Exchange, is
an American Stock Exchange.
NASDAQ stands for National Association of Securities Dealers
Automated Quotation.
The NASDAQ is the largest electronic screen based equity
securites trading market in the united states.
The NASDAQ was found in 1971 by the NASD.
People buy stocks from this exchange online instead of in
person.
The only stock exchange that is larger than the NASDAQ is the
New York Stock Exchange which is abbreviated to NYSE.
Why do companies sell stocks of their
company?
• Companies sell stocks of themselves in order to
raise more money for the company.
• Stocks represent a portion of ownership of the
company.
• When companies need extra income the
normally go to the stock market and sell stocks
to gain profit.
• Companies do this to stay afloat and keep
revenue coming in.
• http://www.ehow.com/facts_5149719_docompanies-sell-stocks.html
Liquidity
• Liquidity is the degree of which security
can be bought for your stock, without
altering the price.
• You normally want to invest in a liquid
stock because with a liquid stock you can
get your money out of the deal easier.
• http://www.investopedia.com/terms/l/liquidi
ty.asp
Preferred Stock and Common Stock
• Common stock is the stock almost every one buys and talks about on
a daily basis.
• This type of stock you get a partial ownership of the company and
some voting rights.
• Common stock has also been proven to have a greater income than
all other forms of stock.
• Common Stock, however, has variable dividends which don’t stay the
same normally.
• Preferred stock on the other hand only allows you to own shares of
the company, but you don’t get the voting privileges.
• Preferred stock has a fixed dividend that stays the same forever.
• Also people who own a preferred stock are paid off sooner than
common stock shareholders when liquidation comes into effect.
• http://www.investopedia.com/university/stocks/stocks2.asp
Dividends and how they work
• Dividends are the payments a corporation makes
to the shareholders. This is its portion of the
profits that go to shareholders.
• When a company finishes of a quarter they have
an amount that they had made that quarter. The
Board of Directors for that stock then decides the
dividend for the stock.
• Either the company chooses to issue this
dividend or decides to reinvest into the company
in hopes to earn even more next quarter.
• http://www.investopedia.com/articles/02/010902.
asp
Different Share Types
• Different share types offer different bonuses from
the company when you buy them.
• Common stock offers you 1 vote in the company
while another share type could offer you 10 votes
for 1 stock.
• A company can modify their stock to their liking
and can add extra bonuses to stock that cost
more.
• Different share types are used to attract new
investors to buy these different things.
• http://www.internettradebureau.com/article/differe
nt-types-of-stock-a1146.html
Quiz
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What is a Stock?
Who are the shareholders?
Who elects the Board of Directors?
Why do Companies issue stock?
What is Liquidity?
What is Common Stock?
How are Stocks traded and where are they
traded?
• What is the most prestigious trading center for
stocks?
• What causes stock prices to change?
• How do stocks affect the US dollar?
Answers
• A stock is a share in the ownership of the company.
• A person who has a partial claim to a company. A.K.A. You the Consumer.
• The Board of Directors are people that are elected by a corporation's
shareholders.
• Companies issue stocks in order to raise large amounts of capital quickly.
• Liquidity is the degree of which security can be bought for your stock,
without altering the price.
• This type of stock is the type of stock everyone refers to when talking about
stocks. Stocks are almost always issued as a Common Stock.
• Stocks are traded on exchanges. These exchanges can happen in person at
a trading floor or online.
• The largest exchange room is the New York Stock Exchange.
• The consumers cause the prices of stock to change.
• If people drop all their stocks like crazy it will cause the market to drop and
also the US dollar. With the dollar dropping we cannot buy goods from other
countries because they have a stronger currency. If the stock market does
extremely well then the dollar will rise and make our goods harder for other
countries to purchase which then lowers our profit from exports.