Investing in stocks

  • Common stock

    • Good investing practices

      • know something about the company before investing in that company

        • Financial Statements/prospectuses

      • gather information to evaluate a potential investment in a stock

      • learn what the information you gather means

      • are sales increasing?

      • is net income increasing over time?

      • are earnings per share (EPS) increasing over time?

    • “The psychology of stock investing”

  • Why corperations issue common stock

    • raise money for start up costs and help pay for expansion and their ongoing buisness activities

    • they dont have to repay the money that a stockholder pays for the stock

  • naked clothing firm

  • Classifications of stock

    • blue chip (dow jones 30)

    • cyclical

    • defensive

    • growth

    • income

    • large cap,mid cap, small cap, micro cap

      • size of the firm

    • penny stock

    • “cap” = market capitilization = share price x shares outstanding

  • Market value → stock price x number of shares

  • some numerical measures that help influence investimate decisions

    • why corperation earnings are important

    • they play a major part in the increase or decrease in the price of a stock

    • EPS are the corperations after tax earnings divided by the number of outstanding shares of common stock. an increase in EPS is generally a healthy sign

    • price earnings ratio: is the price per shqare divided by the earnings per share

    • how much are you willing to pay for every 1 dollar profit that the company makes

    • you cannot have a negative P/E ratio

  • Beta:

    • measures a stocks votality compared to the overall market (S&P500) in other words market risk

    • by definition the market has a beta=1

    • ex → the beta of XYZ = 1.7

    • total return=dividends+capital gains (buy low and sell high)

  • Investigate theories

    • fundamental Analysis (top down aproach)

      • based on the assumption that a stock’s intristic or real value is determined by the company’s future earnings

      • fundamental analysts consider:

        • financial strength of the company and leadership

        • type of industry and competitors

        • new product development

        • economic growth

  • buying and selling stocks

    • Primary market

      • a market where an investor purchases financial securities through an investment bank from the issuer of those securities

      • an investment bank is a finantial firm that assists corperations in raising funds usually by helping to sell new security issues for example goldman sachs

      • An IPO occurswhen aq corperation sells stock to the general public

    • Secondary market for stocks: exchanges

      • a marketplace where member brokers who represent investors meet to buy and sell securities

      • the securities sold at an exchange must be listed or accepted for trading at the exchange

      • New York Stock Echange (NYSE) and NASDAQ

  • Long term techniques

    • buy and hold (through 401k or IRA)

    • dollar cowst averaging

    • see example with J&J

    • direct investimate and dividend reinvestimate plans (DRIPS)

    • thats an optiion when you buy stocks

  • Short term techniques

    • day trading

    • buying stock on margin (barrowing money)

    • selling short (borrowing stock)

    • trading options