Financial Choices in Life - Investing

FIN 1001 | CH.14: “Investing in Stocks” READING & Lecture NOTES ★ For new investors to become more proficient investors, they must master: ‣ Knowing how to use relevant information ‣ Knowing where to find relevant information ★ A proxy is a legal form that request that stockholders transfer their voting rights to someone within the organization who know the situations of the company better. ★ A legal form that lists the issues to be decided at a stockholders' meeting and requests that stockholders transfer their voting rights to some individuals or individual is called: ‣ Proxy ★ The key element to investing is: ‣ Time ★ An advantage of being a preferred stockholder is the ability to receive cash dividend payments before common stockholders. ★ A stock issued by a corporation that has the potential of earning profits above the average profits of all economies is known as growth. ★ Beginning investors must find: good information & know how to use it. ★ The more time an investment has to work, the more money it will likely accumulate. ★ Dividends that may be omitted by board of directors is NOT an advantage of investing in preferred stock. ★ Information on companies’ Web sites is likely to be: more up-to-date than printed materials. ★ An income stock is an investment that pays higher-than-average dividends. ★ Yahoo is NOT a widely used stock advisory service that provides detailed research. 1 FIN 1001-01: Financial Choices in Life Prof. William Stevenson ★ Newspaper is a daily source of printed material that provides useful information about stocks. ★ Earnings per share is equal to after-tax income dividend by the number of outstanding shares of a firm’s common stock. ★ A company’s Website that can be viewed anytime is easily accessible. ★ There are alternative sources for stock advisory services. TRUE, such as Standard & Poor’s, Morningstar, Value Line, etc. ★ All newspapers do not print the same stock information, they just provide basic information. ★ Earnings per share: is a corporation’s after-tax income dividend by the number of outstanding shares of a firm’s common stock. ★ Midcap: is a stock issued by a corporation that has market capitalization of between $2 & $10 billion. ★ Earning estimates exist to provide estimates of: ‣ Earnings per share ‣ Price-earnings ratios ★ Dividend Payout: is the percentage of a firm’s earnings paid to stockholders in cash. ★ Beta is a measure that compares the volatility associated w/ a specific stock issue w/ the volatility of the overall stock market or an index like the Standard & Poor’s 500 Stock Index. ★ An investment practice that is based on the assumption that a stock's intrinsic or real value is determined by the company's future earnings is known as Fundamental analysis. ★ Earnings per share & price-earnings ratios are based on historical numbers. ★ A market in which an investor purchases financial securities via an investment bank or other representative from the issuer of the securities is called a primary market. ★ Securities sold at a particular exchange must be first listed, or accepted/approved for trading. 2 FIN 1001-01: Financial Choices in Life Prof. William Stevenson ★ A licensed individual who buys or sells securities for clients is oftentimes called a account executive. ★ Becky has never invested before. Omar recommends a full service brokerage firm to help her get started in investing. ★ Earning estimates exists to provide estimates of price-earnings ratios & earnings per share. ★ When purchasing a stock, the brokerage firm will usually charge a minimum commission between $5 & $25. ★ A market order is a request to buy or sell a stock at the current market value/ price. ★ Securities Exchange is a marketplace where member brokers who represent investors meet to buy & sell securities. ★ It is better to invest for a long term to enjoy high returns. ★ When dealing w/ an account executive, it is a good idea to be actively involved w/ your investment. ★ The buy-and-hold technique includes the reinvestment of dividends. ★ ★ A day trader is an individual who buys and then later sells stock and other securities in a very short period of time. ★ EX: You purchased Krispy Kreme stock valued at $12,000. Your full-service investment company charges $5 for commission. The total cost of the stock purchase is $12,005 3 FIN 1001-01: Financial Choices in Life Prof. William Stevenson ★ The sooner you invest, the longer your investment will have to grow/increase/rise/ gain/accumulate. ★ The buy-and-hold technique increases value in dividends & stock value. ★ An individual who buys & sells stock & other securities in a very short period of time is called day trader. ★ Stockholders are NOT required to be repaid. ★ Income from stocks is called a Dividend. ★ EXAMPLE of a Stock Split: A company advises you that you will receive 2 shares for every 1 you own. ★ A 2 for 1 split will double the number of shares you have now. ★ Blue Chip stocks are considered a safer investment than other stocks, & are attractive to conservative investors. ★ Growth stocks have the potential of earning above-average profits. ★ “Cap” = capitalization ★ Price per share × number of shares outstanding ★ A Small Cap Stock has a market capitalization above $300 million & below $2 billion. ★ A penny stock sells for less than $5 per share. ★ Most stock trading does NOT usually happen w/ the primary bond. ★ IPD = Initial Public Offering ★ An initial public offering is the first time a corporation sells stock to the public. ‣ Because there’s NO immediate buyer. 4 FIN 1001-01: Financial Choices in Life Prof. William Stevenson