Transcript Slide 1
Spring 2008
Economics 98 / 198 DeCal
`
Introduction to Stocks
Basics of Investing I
www.ocf.berkeley.edu/~jml/decal
Schedule Today
Administrative Issues
Lecture content: Basics of Investing
–
–
–
–
–
–
What is a stock?
How are they traded?
What are brokerages?
Different types of orders
What is the market?
Terminology
Learning how to use the simulation; IBD
Current Events
Assignments / Readings
Administrative Issues
Attendance & Sign-In
Name Tags
Enrollment
Emails
Webpage
Syllabus Review
News Presentation Sign Ups
Investor’s Business Daily Access
Lecture Content
What is a stock?
Common stock
Gives you a “share” of ownership of a
publicly traded company
Stock ownership
–
Voting rights
–
Claim to assets (behind debt holders)
and earnings
–
Potentially entitled to dividends
What is a stock?
Ticker symbols
– Set of letters that represent a security traded
on an exchange
– Ex. MSFT, GS, AAPL, MA, BUD, LUV
Stock quotes
– List of prices for a stock at a particular point
during the trading day
Stock tickers
– What do those green and red numbers mean?
Basic Stock Quote
More Stock Quotes
Different Types of Stock
Preferred Stock
–
–
Common Stock
–
–
–
–
No voting rights to company issues
Issued fixed dividends forever – main form of return
Majority of stock we see and hear about in the news
Ownership of the company
Entitled to portion of the earnings
Earn returns mainly through capital gains
What are capital gains?
–
–
–
Increase in asset value relative to the purchases price
Not realized until asset is actually sold
Example.
Stocks vs. Bonds
Stocks are equity
–
–
–
Generally considered riskier
Quite possible to lose a significant
portion, if not all, of your money
Potential for high returns
Bonds are debt
–
–
Lower and usually fixed return
Higher claim than stockholders
What does this mean?
Dividend Debate
Distribution of a portion of a
company's earnings to its
shareholders (usually cash)
Bad or Good?
–
Why?
What Can Cause Stock Prices to
Change?
EASY! Supply and Demand!
But…what affects supply / demand of a
stock?
What Can Cause Stock Prices to
Change?
Earnings & growth expectations
Positive / negative news
Economy sentiment
Investor sentiments & attitudes
Irrational exuberance / behavior
Two Markets
Primary Market – market in which investors
have first opportunity to buy newly issued shares
–
Initial Public Offering (IPO)
First time that company offers its shares to public
markets (securities bought directly from company)
Where private companies become public
Secondary Market – investors trade alreadyissued shares of companies with each other
–
–
Ie. The stock market
Trading of a company’s stock DOES NOT DIRECTLY
involve the company financially
How Stocks Are Traded
Major exchanges
–
Lists stocks (and other securities), sets
policies for how stocks are traded
New York Stock Exchange (NYSE)
American Stock Exchange (AMEX)
National Association of Securities Dealers
Automated Quotation
Only “publicly traded
companies” are listed
Market Indices (Index)
Definition
– Aggregate value of combining
several stocks together and
intended to represent entire or
portion of the stock market
S&P 500
–
500 stocks chosen by Standard &
Poor to represent US stock market
NASDAQ Composite
Dow Jones Industrial Average
–
30 most significant stocks traded
S&P 600 Small-Cap
Russell 3000
–
3000 of the largest stocks in the US
Stocks Markets & Animals
Bull Market
–
When everything in the market is going great
and stocks are generally heading upwards
Bear Market
–
When everything is NOT GOOD and stocks are
generally headed
NOTE: Nothing lasts forever! Good times
and bad times will end at some point
Other animal terms: pigs, chickens
http://www.investopedia.com/university/stocks/stocks7.asp
Brokerages
Need a medium to trade
through – this is where
brokerages come in
Cash vs. margin account
Criteria
–
–
–
–
Full service vs. discount
Fees (commission)
Services / tools
Minimum balance
Opening an Account
Not a hard process- most of it just some
paperwork and mail
–
–
–
Cash accounts usually never turned down
–
Sign-up online and download forms
Mail checks, forms, and copy of ID
Accounts created within a couple of days
Margin accounts difficult if you have pretty bad
credit history
What you will need: a computer, starting
capital, and investing know-how
Brokerages
Some links for brokerage comparisons
–
–
Find something that works for what YOU need
No one broker that is best for all investors
http://www.investingonline.org/gso/broker_ratings.html
http://www.consumersearch.com/www/internet/onlinebrokers/
http://www.stockbrokerguide.com/
http://online-stock-trading-review.toptenreviews.com/
Different types of Orders
Market Order
Limit Order
Order executes to buy / sell at specified price
of better (lower). Limit orders usually cost
more, but useful for getting specified price
Stop Order
Order executes when the price surpasses a
particular point, which helps buy or sell at a
particular price. Limiting loss or locking profits
Different Types of Orders
Stop Limit Order
Executed at a specified price (or better) after a
given stop price has been reached. Order
becomes then a limit order to buy (or sell) at
the limit price or better
Precision purposes
Good Until Cancelled (GTC)
Good Until End of Day
Things to Internalize
Learn the basics!
–
–
Need to know what basic terms mean
Articles should help you
Advantages of starting young
Useful resources for stock tutorials
–
–
–
www.investorwords.com
http://www.investopedia.com/university/
www.fool.com
Current Events
Investopedia Simulation
Homework / Reading
Set up simulation account & start
trading
Online articles (Course website)
–
–
“The Five Biggest Stock Market Myths”
“Getting Started”