Chapter 12
Investing in Stocks
Evaluating Stocks
Buying and Selling Stock
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INVESTING IN STOCKS
GOALS
Chapter 12
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Terms to Know
Stockholders
Dividends
Capital gain
Common stock
Proxy
Preferred stock
Income stocks
Growth stocks
Blue chip stocks
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Par value
Market value
Earnings per share
Bull market
Bear market
Leverage
Short selling
Stock split
Direct investment
Dividend
reinvestment
Why Learn About Stocks
The stock market is the core of
America’s economic system
Stock is a share of ownership in the
assets and earnings of a company
Bond is a type of debt that a company
issues to investors for a specified
amount of time.
Stock market is a general term used
to describe all transactions involving
the buying and selling of stocks and
© South-Western
bonds Educational
issued Publishing
by a company
Why Companies Issue
Stock
When a company would like to grow,
it issues stocks to raise funds and
pay for ongoing business activities
It is popular because:
The company does not have to repay
the money
Paying dividends is optional
Dividends are distributions of earnings
paid to stockholders
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Risk vs. Return
On average, stocks have a high rate of
return
The increase or decrease in the original purchase
price of an investment
Higher rate of return = greater risk
Uncertainty about the outcome of an investment
Stocks provide portfolio diversification
Money invested in a variety of investment tools
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Investing
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Why invest in stocks??
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Characteristics of Stock
12.1
CLOSED
CORPORATION vs.
PUBLIC
CORPORATION
A Closed Corporation is formed
the same as a regular
corporation, except that the
shareholders determine that
they want to run the corporation
without a Board of Directors.
This decisions must be
unanimous
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Closed Corporation vs.
Public Corporation
A Public
Corporation is a
company whose
stock is traded
openly on stock
markets
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Stockholders
Another name 
Shareholders
What does it mean to be a
stockholder?
You OWN a part of the company !!
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HOW DO I BUY STOCK?
Yahoo Finance
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Stock
Obtain a price for one (1) share of
Old Navy stock
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Gap subsidiaries:
Banana Republic
Old Navy
Piperlime
Athleta
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Price for Berkshire Hathaway BRKa
per share?
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Stock Selection – please return to
your seats for instructions & demo!
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Lesson 12.1
Evaluating Stocks
GOALS
Describe the features of common stock and
compare it to preferred stock.
Discuss stock investing classifications and why
you would choose one over another.
Explain how stock values are determined.
Discuss factors that affect a stock’s price.
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Stock
Stockholder - part owner of
company
Dividend – portion of corporation’s
profits that are paid to stockholders
Capital gain – selling stock for
more than you paid for it
Price goes down?  Capital Loss
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Stock
How much can a stockholder lose?
as much as he/she had invested
Traded in:
ROUND LOTS – (100 shrs.)
ODD LOTS – (fewer than
100 shrs.)
60/40 – 2 transactions
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There are two types of stock:
Common
Preferred
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Common Stock
Variable dividend
Voting rights elect Board of Directors (decides to give
shareholders Dividends)
- issue additional stock, sell company,
change Board of Directors
1 share = 1 vote
Proxy – stockholder’s written
authorization to transfer his/her voting
rights to someone else (company mgr.)
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Buy Stocks
Price X # of shares = Total Cost
+ commission
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Return on Investment
Profit / Original Investment X 100
Best way to measure your return!
Dollar amount not important – it’s
the percentage that counts!!!
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Dividends
A portion of the company’s profit that
is paid to shareholders
Company sells ---- 10,000. {sales}
--pays Expenses
7,500 {bills}
--pays Taxes
500
NET INCOME ----------2,000 {left over}
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Dividends
Net Income
$2,000.
3 Options:
a) Retain and invest
b) Pay dividends to shareholders
C) Retain portion + pay out portion
Must a company pay out dividends?
No -- only if they choose to do so
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Dividends
Who decides whether or not to pay dividends?
 Company Board of Directors
Does a shareholder pay taxes on dividends?
 Yes, both Federal & State
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Dividends
When are dividends usually paid?
 usually Quarterly (but can be annual)
Are dividends always paid in the form of cash?
 No {Cash or additional Stock}
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Important Dividend Dates
TRADE Date - Day on which the trade is executed
Declaration Date – Day on which a corporation’s board of
directors meets, decides on the amount of the dividend, and
makes the public announcement
Ex-Dividend Date Normally set for stocks TWO business days before the record date
If you purchase a stock ON its ex-dividend date OR AFTER, you
will NOT receive the next dividend payment
Purchase before the ex-dividend date, you get the dividend
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Dividend Dates
Record Date – Date established by an issuer of a security for
the purpose of determining the holders who are entitled to
receive a dividend or distribution
Payment Date - Day on which the corporation makes payment
of the dividend to previously determined holders of record
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Dividend Dates – cont.
SUN
1
8
15
22
29
MON
2
9
16
23
30
TUES
3
10
17
24
WED
4
11
18
25
THURS
5
12
19
26
Here is an example:
Declaration Date
7/27/99
Ex-Dividend Date
8/6/99
FRI
6
13
20
27
SAT
7
14
21
28
Record Date
8/10/99
Payable Date
9/10/99
On July 27, 1999, Company XYZ declares a dividend
payable on September 10, 1999 to its
shareholders.
© South-Western Educational Publishing
XYZ also announces that shareholders of record on the
company's books on or before August 10, 1999 are
entitled to the dividend. The stock would then go exdividend two business days before the record date.
Excluding weekends and holidays, the ex-dividend is set
two business days before the record date or the opening
of the market
in this case on the preceding Friday.
This means anyone who bought the stock on Friday or
after would not get the dividend.
At the same time, those who purchase before the exdividend date receive the dividend.
© South-Western Educational Publishing
Example of ….
CRUCIBLE DECLARES BIG STOCK DIVIDEND;
Announcement of 50 Per Cent. Payment First Since
Decision as to its Non-Taxability. PAR VALUE IS
$12,500,000 Stanley Works of New Britain to Issue
100 Per Cent. Stock Bonus and Buy Level Company.
PITTSBURGH, Pa., March 16.--Di rectors of the Crucible
Steel Company of America late today declared a stock
dividend of 50 per cent., payable in the common stock of
the company on April 30 to stockholders of record April
15. It is the first important corporation to take such
action since the decision of the United States Supreme
Court affecting stock dividends.
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How Stocks are Traded
Stock Trades
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Types of Stock Orders
MARKET ORDER
LIMIT ORDER
STOP LOSS ORDER / STOP
STOP LIMIT ORDER
DAY ORDER
GTC ORDER
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MARKET ORDER
Order to buy/sell stock at the best
possible price
a/k/a current price
Risk in a Market Order?
actual price at which your trade will
be executed - unknown
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MARKET ORDER
What might change the
price?
-- price moving quickly
(volatile)
-- placing orders when
market is closed
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LIMIT ORDER
Order to buy/sell stock at a
specified price, or better
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LIMIT BUY ORDER
100 SHARES @ $13.50
Trade will execute at a price
equal to or LESS than
=
<
$13.50/share
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LIMIT SELL ORDER
100 SHARES @ $31.60
Trade will execute at a price
equal to or GREATER than
=
>
$31.60/share
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LIMIT DAY ORDER
Execute buy/sell order some time
during that trading day
No execution 
order is automatically cancelled
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GTC (Good’til Cancelled)
Order stands until it is filled or until
investor cancels it
Broker policy – may automatically
cancel GTC orders after 60/90 days
-- may or may not renew a cancelled
GTC order for you
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© South-Western Educational Publishing
Review Orders
Market Order – will execute (exact
price unknown)
Limit Order – may not execute (exact
price known)
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Review Orders
You place a GTC limit order to sell
100 shares of Kmart at $7.50.
Over the next two months, the
price of KM ranges from a high of
$8.10 to a low of $6.25.
Did your order execute?
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Review Orders
Probably - possibility exists that you
may place a limit order and the
market may reach the limit price
but your order was not executed.
 stand in line
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Protecting a profit –orLimiting a loss
STOP LOSS ORDER
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STOP LOSS ORDER
Order to sell a stock at the market
price if the price falls to the
requested stop loss price
-- place order, stop loss price should
be below the current market price
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STOP LOSS ORDER
-- if the value of the stock declines
to the stop loss price, the stop loss
order converts to a market order
-- hence, the actual value of the
stock at execution may be less than
or more than the requested stop
loss price
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STOP LOSS ORDER
i.e. Stock price = $31.75
Stop loss order = $25.
Stock falls to $22.50
-- converted to market order at $25.
-- may execute at $25 or lower
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STOP LIMIT ORDER
Order to sell your shares at a
specified price if the market falls to
that price
-- place order, should be less than
current market price
-- guarantees price, not execution
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Types of Stock Orders Summary
Buying
Selling
Market
- order to buy at the
next available price
- order to sell at the
next available price
Limit
- order to buy at or
below a specified
price
- order to sell at or
above a specified
Stop
- order to buy
above the current
price
- order to sell below
the current price
Stop Limit
- order to buy
above the current
price with a limit
- order to sell below
the current price
© South-Western Educational Publishing
price
with a limit
Which one describes this order???
Good-Till-Cancel order to buy 500 shares of MSFT on a
stop at $51.00
Good-Till-Cancel order to buy 50 shares of MSFT at the
limit price of $51.00
Day order to buy 500 shares of MSFT on a stop at $51.00
with a limit of $51.00
Good-Till-Cancel order to buy 500 shares of MSFT at the
limit price of $51.00
Good-Till-Cancel order to sell 500 shares of MSFT at the
limit price of $51.00
© South-Western Educational Publishing
Bid / Ask Prices
The bid is the price that someone
is willing to pay for the stock you
are selling. The ask is the price
that someone is willing to sell to
you the stock that you are
interested in buying.
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Bid / Ask Prices
Here's what the bid and ask look
for MSFT recently:
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© South-Western Educational Publishing
Bid / Ask Prices
The bid/ask spread is simply the
difference between those two
prices. Typically the asking price
will be higher than the bidding
price.
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Preferred Stock
Fixed dividend – less risky than
common (less return)
No voting rights
Preferred stock is often purchased
by corporations because of tax
breaks they offer companies
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Classifying Stock
Investments
Income versus growth stocks
Pay dividends /or/ reinvest in corp.
Stocks that have a consistent history of
paying high dividends  Income
stocks
Preferred stocks – most certain & predictable
dividend income
Does not grow in value (price increase) as quickly
as growth stocks
© South-Western Educational Publishing
Classifying Stock
Investments
Growth Stocks – corporations that
reinvest profits back into the business
looking for future price increases (capital gains)
Less-established versus blue chip stocks
Small corporations = higher risk / inexpensive
Blue Chip – large, well-established companies;
solid record of profitability
safe, stable, but moderate returns
© South-Western Educational Publishing
Classifying Stock
Investments
Defensive versus cyclical stocks
Defensive – remains stable and pays
dividends during economic declines
Cyclical – increases when economy is
prospering; poor performance during
recessions
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Defensive Stocks
Beverages (soft drinks and alcohol)
Consumer products (soaps, toothpaste, toilet paper, cleaning materials)
Drugs
Food
Gold
Health care
Pet care & food
Utilities, both electric and natural gas
© South-Western Educational Publishing
Cyclical Stocks
Automobile manufacturers
Airlines
Furniture
Steel
Paper
Heavy machinery
Hotel
Expensive restaurants
--are the best examples.
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GOALS
Margin Buying
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What is “Buying on
Margin?”
Buying stock on credit
Margin increases your b u y i n g
power.
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APPLY
You must sign a “Margin
Agreement” with your broker.
You must be “Approved” to Buy on
Margin”
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When you buy on
margin, how much of the
purchase price must you
put up?
Initially --- 50%
50%
50%
50%
50%
© South-Western Educational Publishing
Who determines the
percentage?
The Federal
Reserve Bank
a/k/a
Skip to
© South-Western Educational Publishing
The “FED”
Why do you think there is a
limit on the amount of
money that brokers can
lend?
If brokers lend too much money,
losses could be great
High losses on margin accounts
were one reason the stock market
crashed in 1929
Stock owners received margin call
and could not meet them
© South-Western Educational Publishing
Who’s Calling?
Did You Know?
If a customer can’t provide additional
cash, a broker can sell shares in the
account, even without the knowledge
or consent of the customer.
If other stocks are in the account, the
broker may sell these shares in place
of, or in addition to, the shares of the
falling stock.
© South-Western Educational Publishing
RISK
Think a 50% loss is bad?
It can get much worse. Buying on
margin is the only stock-based
investment where you stand to lose
more money than you invested. A
dive of 50% or more will cause you
to lose more than 100%, with
interest and commissions on top of
that.
© South-Western Educational Publishing
What are the advantages
of buying stock on
margin?
An investor can buy MORE stock and
make HIGHER returns
© South-Western Educational Publishing
What are the
disadvantages of buying
stock on margin?
Stock purchases must pay interest
on the loan, and if the stock goes
down, their losses would be
higher
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The amount of collateral that
investors must deposit to open a
margin account – initial margin
requirement
Must be 50% (one-half) of the total
value of stock purchased/sold short
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Initial Margin
Requirement
To make a $10,000 stock purchase
on margin 
Investor must deposit
$5,000
(5,000 / 10,000 X 100) = 50%
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EQUITY
Actual amount of ownership the
investor has in the account
Portion investor O W N S
© South-Western Educational Publishing
Example
Current value of stock
purchased
$10,000
Debt (money owed to Broker) - 5,000
EQUITY (amount owned by
investor)
© South-Western Educational Publishing
$ 5,000
Price of stock increases
Current value of stock
$11,000
Debt (money owed to Broker
- 5,000
EQUITY (amount owned by
investor)
$ 6,000
 Equity also increases
© South-Western Educational Publishing
Price of stock decreases
Current value of stock
$9,000
Debt (money owed to Broker) - 5,000
EQUITY (amount owned by investor)
$ ?
 Equity also ?????
© South-Western Educational Publishing
Price of stock decreases
Current value of stock
Debt (money owed to
Broker)
EQUITY (amount owned by
investor)
 Equity also decreases
© South-Western Educational Publishing
$9,000
- 5,000
$4,000
© South-Western Educational Publishing
Why use Margin?
LEVERAGE -- The use of various
financial instruments or borrowed
capital, such as margin, to increase the
potential return of an investment
Leverage amplifies every point that a
stock goes up. If you pick the right
investment, margin can dramatically
increase your profit.
© South-Western Educational Publishing
Ticker
A worldwide electronic system that
continuously shows the price and
volume of a stock as it is traded.
© South-Western Educational Publishing
Stock Index
Statistical gauge that uses a given
number of stocks to measure
changes in the overall stock market
© South-Western Educational Publishing
MOVIE MARGIN
© South-Western Educational Publishing
MARGIN OF SAFETY
An amount beyond the minimum
necessary
© South-Western Educational Publishing
DOW Jones Industrial
Average
Formula based on the stock prices
of 30 industrial companies
Formula adds up the stocks’ prices
and the divides by a certain
number to derive the average
The Dow Jones Industrial Average is a
key barometer of U.S. equities that is
recognized and used the world over.
© South-Western Educational Publishing
DOW
Price-weighted - company’s weight
or importance depends upon “price’
i.e. 1% change in a high-priced
stock has larger impact than a 1%
increase in a lower-priced stock
© South-Western Educational Publishing
United Technologies Corp.
International Business Machines Corp.
3M Co.
Caterpillar Inc.
American International Group Inc.
Johnson & Johnson
Procter & Gamble Co.
Boeing Co.
Wal-Mart Stores Inc.
American Express Co.
Altria Group Inc.
Citigroup Inc.
Exxon Mobil Corp.
Merck & Co. Inc.
Coca-Cola Co.
E.I. DuPont de Nemours & Co.
General Motors Corp.
Verizon Communications Inc.
JPMorgan Chase & Co.
Home Depot Inc.
Honeywell International Inc.
General Electric Co.
Alcoa Inc.
Pfizer Inc.
McDonald's Corp.
Microsoft Corp.
SBC Communications Inc.
Walt Disney Co.
Intel Corp.
Hewlett-Packard Co.
© South-Western Educational Publishing
Stock Index
Statistical gauge that uses a given
number of stocks to measure
changes in the overall stock market
© South-Western Educational Publishing
NASDAQ Composite Index
(^IXIC)
Nearly 4,000 companies listed on
NASDAQ Stock Market
Popular gauge for technology
stocks
© South-Western Educational Publishing
Russell 2000 Index
Gauge of smaller companies
Of 3,000 U.S. largest companies,
the smallest 2,000 represent the
Russell 2000
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S & P 500 (GSPC)
Popular measure of stock prices
consisting of 500 large companies
that represent the major sectors of
the U.S. economy
Value-weighted - weight or
importance of each company
depends upon its market cap (
outstanding shares X price)
© South-Western Educational Publishing
DOW vs S & P 500
© South-Western Educational Publishing
Auction Market
Buyers and sellers interacting by
announcing bids and offers and
thereby determining prices, usually
at a physical location like a trading
floor
NYSE (New York Stock Exchange) –
largest, oldest, and most widelyknown
© South-Western
Educational
Publishing
Hours 9:30
a.m.
to 4:00 p.m.
NYSE - Auction
Specialist – watches over assigned
stocks at a specific trading post
© South-Western Educational Publishing
NASDAQ
National Association of
Securities Dealers
Automated Quotation
Computerized
market that relies
on Market Makers
 not a physical
place
© South-Western Educational Publishing
OTC – Over The Counter
An electronic quotation system for
many stocks that don't qualify for
listing on the national markets.
BB Bulletin Board
© South-Western Educational Publishing
Market Maker
A business that stands ready to buy
or sell stock at publicly quoted
prices
Keeps an inventory of stock (like a
shoe store)
Investors deal directly with market
makers, not other investors
© South-Western Educational Publishing
Market Maker
Always quotes a Bid / Ask price and
the number of shares it stands
ready to buy or sell at those prices
© South-Western Educational Publishing
AMEX
American Stock Exchange
The third largest stock market in
the U.S., with a trading floor in New
York City where people trade stocks
and other investments on behalf of
investors.
© South-Western Educational Publishing
The Securities Market
Securities exchanges –marketplace
where brokers who are representing
investor meet to buy and sell securities
largest organization in US  NYSE (2/3rd
size of football field) – AUCTION MARKET
Floorbrokers buy and sell on the exchange
Trading posts – specialists
American Stock Exchange
© South-Western Educational Publishing
© South-Western Educational Publishing
© South-Western Educational Publishing
Www.marketrac.nyse.com
© South-Western Educational Publishing
Large-Cap Stock
Companies whose market
capitalization is large ($$$$$)
$5 Billion or more
IBM 
Market Cap:
© South-Western Educational Publishing
200.63B
Small-Cap Stock
Companies whose market
capitalization is small ($$)
Under $500 Million
1-800-Flowers.com 
Market Cap:
454.74M
© South-Western Educational Publishing
Bull and Bear Markets
© South-Western Educational Publishing
What is Market
Capitalization (Market
Cap)?
© South-Western Educational Publishing
Total current market
value of all outstanding
shares of a company
-- $ Stock Price X
outstanding shares
© South-Western Educational Publishing
# of
Determining a Stock’s
Worth
Stock value
Par value – artificial dollar value
Market value – price on current market
Stock price
Stocks that are selling for “less” than what
they are really worth – “undervalued”
“Overvalued” – high risk of price decreases
Return on investment
© South-Western Educational Publishing
Stock Price
The company – performance / earnings /
debt status
Interest rates – as interest rates fall,
people tend to invest more
The market – demand determines
profitability
Earnings per share – after-tax earnings
divided by the number of common stock
shares outstanding (in hands of
investors)
© South-Western Educational Publishing
Stock Price
Net Profit = $1,000,000
Outstanding =
100,000
$1,000,000 / 100,000 = $10/EPS
stock probably sells for higher price
Measure of company’s profitability
© South-Western Educational Publishing
© South-Western Educational Publishing
What is Short Selling
Short selling is the sale of stock
borrowed from a broker
It is a strategy often used when a
buyer believes a particular stock
will go down in value.
© South-Western Educational Publishing
Short Selling
A short seller believes a particular
stock’s price will drop and enable
him/her to repay the borrowed shares
with lower-priced ones.
The difference in the price between
when the stock was borrowed from the
broker and when it was repaid would be
the short seller’s gain.
© South-Western Educational Publishing
If the stock’s price rises, however, a
short-seller will lose money
because the borrowed shares will
be repaid with higher-priced ones.
© South-Western Educational Publishing
Example
if an investor borrows 100 shares of
a particular stock from a broker at
$10.00 a share , selling it on the
market at that price, the investor
sees the stock drop to $5.00 a
share and buys the 100 shares
from the market to repay the
broker making a $5.00 per share
profit.
© South-Western Educational Publishing
This can be a risky transaction; if
the shares go up to $15.00 per
share the investor will lose $5.00
per share and needs to use cash to
buy back the shares.
© South-Western Educational Publishing
When a particular stock or the
market in general (bear market) is
declining, the opportunity to sell
before buying or short sell gives
investors a chance to realize gains
on declining stocks.
Sell-high, buy-low strategy
© South-Western Educational Publishing
When a particular stock or the
market in general (bear market) is
declining, the opportunity to sell
before buying or short sell gives
investors a chance to realize gains
on declining stocks.
Sell-high, buy-low strategy
© South-Western Educational Publishing
Should the stock rise in price the
loss potential is unlimited.
Many financial advisors, therefore,
recommend short selling only to
experienced investors.
© South-Western Educational Publishing
Should the stock rise in price the
loss potential is unlimited.
Many financial advisors, therefore,
recommend short selling only to
experienced investors.
© South-Western Educational Publishing
Short Cover
Buying stock in order to repay a
broker for the shares borrowed
when the stock was sold short.
© South-Western Educational Publishing
Long Position
The condition of owning stock. The
value of a long position is a stock’s
current share price multiplied by
the number of shares owned.
© South-Western Educational Publishing
Short Selling
GOALS
© South-Western Educational Publishing
What is Short Selling
Short selling is the sale of stock
borrowed from a broker
It is a strategy often used when a
buyer believes a particular stock
will go down in value.
© South-Western Educational Publishing
Short Selling
A short seller believes a particular
stock’s price will drop and enable
him/her to repay the borrowed shares
with lower-priced ones.
The difference in the price between
when the stock was borrowed from the
broker and when it was repaid would be
the short seller’s gain.
© South-Western Educational Publishing
If the stock’s price rises, however, a
short-seller will lose money
because the borrowed shares will
be repaid with higher-priced ones.
© South-Western Educational Publishing
Example
if an investor borrows 100 shares of
a particular stock from a broker at
$10.00 a share , selling it on the
market at that price, the investor
sees the stock drop to $5.00 a
share and buys the 100 shares
from the market to repay the
broker making a $5.00 per share
profit.
© South-Western Educational Publishing
This can be a risky transaction; if
the shares go up to $15.00 per
share the investor will lose $5.00
per share and needs to use cash to
buy back the shares.
© South-Western Educational Publishing
When a particular stock or the
market in general (bear market) is
declining, the opportunity to sell
before buying or short sell gives
investors a chance to realize gains
on declining stocks.
Sell-high, buy-low strategy
© South-Western Educational Publishing
Should the stock rise in price the
loss potential is unlimited.
Many financial advisors, therefore,
recommend short selling only to
experienced investors.
© South-Western Educational Publishing
Short Cover
Buying stock in order to repay a
broker for the shares borrowed
when the stock was sold short.
© South-Western Educational Publishing
Long Position
The condition of owning stock. The
value of a long position is a stock’s
current share price multiplied by
the number of shares owned.
© South-Western Educational Publishing
Lesson 12.2
Buying and Selling Stock
GOALS
Describe market channels and the process for
buying and selling securities.
Describe short- and long-term investment
strategies when buying and selling stocks.
Explain how to read the stock listings in
financial publications and how to use stock
indexes.
© South-Western Educational Publishing
A member firm is a company or individual who owns or
leases a "seat" on the NYSE. Only member firms are
allowed to buy and sell securities on the trading floor. To
become a member firm, a company must meet rigorous
professional standards set by the Exchange. The number of
seats has remained constant, at 1,366, since 1953.
© South-Western Educational Publishing
The Securities Market
Over-the-counter market – securities
bought and sold through broker but not
through a stock exchange, the
transaction is over-the-counter OTC
Network of brokers who buy/sell
securities of corporations that are not
listed on a securities exchange
Brokers operating in the OTC market use
an electronic quotation system called
NASDAQ
© South-Western Educational Publishing
Investing Strategies
Short-term techniques – buying on
margin & Short selling
Speculator/Day Trader - buying
stock for the short-term
Long-term techniques- Buy and
hold
Investor - buying stock for the longterm
© South-Western Educational Publishing
Short-Term
Investing Techniques
Buy on margin
Leverage - the use of borrowed
money to buy securities
anticipate stock price 
Margin call - market value of
margined stock falls to one-half of the
original purchase price
Sell short - selling stock borrowed
from a broker
© South-Western Educational Publishing
Long-Term
Investing Techniques
Buy and hold
Ride out down times
Dividends
Stock split - increase in number of
outstanding shares of company’s
stock
© South-Western Educational Publishing
Dollar Cost Averaging
Buy same stock with same amount of money at
regular intervals
Month 1 - $400 ($20)
Avg. Price = $10.43
Month 2 - $400 ($10)
Month 3 - $400 ($5)
Purchase = $2,400
Month 4 - $400 ($16)
Sold
= 3,680
Month 5 - $400 ($10)
Month 6 - $400 ($16)
Profit
= 1,280 or
-- decide to sell
53%
© South-Western Educational Publishing
Long-Term
Investing Techniques
Dollar-cost averaging - systematic
purchase of an equal dollar amount
of the same stock at regular
intervals
Direct investment - buy stock
directly from company
Reinvesting dividends
avoids broker fees & other costs
© South-Western Educational Publishing
Reading the
Stock Listings
1
2
3
4
58.75
45.00
10.50
24.00
6.38
57.00
44.00
23.00
9.00
16.00
4.00
32.00
Enger
Eng pf
Entld
Epsco
Exlab
ExeB
2.20
2.25
.10
1.00
.-2.50
5
6
4.8 12
8.9 10
1.0
3
5.0
7
.-- 15
5.7 11
7
8
9
109
25
8
12
300z
48
46.38
26.25
10.13
21.00
5.75
46.00
45.50
24.00
9.50
19.00
5.12
43.00
© South-Western Educational Publishing
10
46.00
25.83
10.00
20.00
5.50
44.00
11
- .50
+ .38
. -+ .88
.-+1.00
Stock Progress Chart
Stock
Names
Enger
Glastn
Karbr pf
Maxln
Totlmb
1
28
40
61
51
10.88
Closing Prices for 10 days
2
3
4
28.50
29
29.50
39
38
38
62
62.38
61
51.13
52
52
10
9
8
© South-Western Educational Publishing
5
30
38
61.13
53.50
8.5
Total
Change
(+ or -)
+2
-2
+ 0.13
+ 2.5
- 2.38
Stock Indexes
Dow Jones Industrial Average
Standard & Poor’s 500
NASDAQ Composite Index
© South-Western Educational Publishing
Stock Splits
2:1 - Quantity of shares increase
while price divides.
1 share @ 100  2:1 split ($100)
2 share @ 50 ($100)
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Bull and Bear Markets
Bull – prolonged period of rising
stock prices
Bear – prolonged period of falling
stock prices and a general feeling
of investor pessimism
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Bid / Ask Prices
Spread – difference between Bid
and Ask price
Large difference means stock is
volatile (risky; price changes often)
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Annual Report
Annual reports are intended to give
shareholders and other interested
people information about the
company's activities and financial
performance.
© South-Western Educational Publishing
Annual Report contents
© South-Western Educational Publishing
Shareholder’s letter (written by
CEO) – positive nature
Auditor’s Report
Mission Statement
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Corporations
Must disclose financial information
if they are PUBLIC.
© South-Western Educational Publishing
Incorporation
Elect a Board of Directors
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Steps to Incorporate
The articles of incorporation
(also called a charter, certificate of
incorporation or letters patent) are
filed with the appropriate state
office, listing the purpose of the
corporation, its principal place of
business and the number and type
of shares of stock.
© South-Western Educational Publishing
Steps to Incorporate
Authorize the number of shares of
stock a company can issue.
© South-Western Educational Publishing
Steps to Incorporate
Bylaws – outline of company
meetings and rules and regulations
by which the company will be
governed.
Must be filed with the STATE.
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Stock Screener
© South-Western Educational Publishing
Annual Report
Company is required by the SEC
(Securities Exchange Commission)
to hold an annual meeting +
publish an annual report.
Also known as: 10K
Changes in a fiscal year:
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8K