Chapter 11.2 notes
Why invest?
Basic Investment Considerations
• Risk-return relationship – the more
your risk, the higher the potential return
• Investment objectives – retirement,
vacations, college fund?
• Simplicity – don’t invest in something
you don’t understand
• Consistency – invest consistently over
long periods of time
diversification
• Putting money into different
investments, different risk levels, etc.
Chapter 11.3 notes
Stocks
The basics
• You invest in a stock at a certain price
per share
• You make money when the price goes
up
• Called capital gains
2 types of stock
• Common – gives voting rights
• Preferred – gives a share of profits, but
no voting rights
Organized Stock Exchanges
•
•
•
Stock is sold through exchanges
Securities Exchanges – places where
buyers and sellers meet to trade securities
New York Stock Exchange (NYSE) –
oldest and largest original exchange; in
NYC; use auctioning process through face
to face trading; now a lot of trades are
electronic
What it looks like
Outside on Wall St.
Inside on the floor
Over-the-Counter Markets
•
OTC – electronic marketplace for
securities that are not traded on an
organized exchange.
National Association of Securities
Dealers Automated Quotation (NASDAQ)
•
•
•
•
•
most important OTC
largest electronic stock market
trading is done w/ a computer and
telecommunications network that connects
investors in over 80 countries
over 4,000 stocks
Measures of Stock
Performance
•
•
Dow-Jones Industrial Average – most
popular and widely publicized measure of
stock performance. 30 stocks including B of
A, Exxon, Coke, GE, Wal-mart and Disney;
measured in points
Standard and Poor’s 500 – measures price
changes of 500 stocks
Bull vs. Bear
•
Bull v. Bear Markets – Bull = strong
w/ prices going up for a while; Bear =
“mean” market, w/ prices falling
sharply for several months
The Bronze Bull