Transcript Chapter 19 Savings and Investment Strategies

INVESTMENT POWER
2.1 THE POWER OF INVESTING
2.2 THE CORPORATION
2.3 THE INVESTMENT SUPERMARKET
2.4 BUYING AND SELLING STOCK
2.5 STOCK MARKET LITERACY
INDUSTRY INDICATORS (find 5)
AFLAC, INC. p 35
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Lesson 2.1
The Power of Investing
Goals
Compare and contrast investing and saving.
Determine how compounding works.
Discuss four basic rules for taking advantage of
the long-term power of investing.
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SAVING AND INVESTING
Saving
putting money aside so it will be available when you
need it
Investing
taking measures to make money grow
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THE REWARDS OF INVESTING
1. Investing is a great way of making money.
2. The rewards of investing can last a lifetime.
3. With investing, time is on your side.
bull market: good times on Wall Street
bear market: bad times on Wall Street
4. Investing can help you beat inflation.
5. Investing is a way of owning a piece of corporate
America.
6. Investing is fun.
(DO: Analysis of Friday’s buys/what happened & why?)
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THE GROWING IMPORTANCE
OF INVESTING
Your employment is likely to change at least a
half dozen times throughout your career.
Your long term security, including your
retirement and pension, rests in your own
hands.
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THE MAGIC OF COMPOUNDING
Compound Interest
Interest which is calculated not only on the initial
principal but also the accumulated interest of prior
periods
Stock Market Returns
dividends
increases in stock prices
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Why aren’t these
percentages nice,
even multiples of
the percentage
rate?
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THE RULE OF 72
To determine how long it takes an investment to double,
divide 72 by the annual rate of return
Example: 72/x = # of years it will take for the amount
invested to double; where x is the return on the
investment
If the rate is 8%?
If the rate is 2%?
If the rate is 12%?
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FOUR BASIC RULES FOR INVESTORS
1. Invest on a regular basis over a long period of time.
2. Reinvest all earnings (dividends, interest, capital
gains).
3. Invest in the common stocks or mutual funds of good
quality growth companies.
4. Diversify your portfolio to reduce overall risk.
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Lesson 2.2
The Corporation
Goals
Explain different forms of businesses.
Compare primary and secondary capital
markets.
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ORGANIZING A BUSINESS
The two basic needs a business must meet are:
Labor: those people who do the work
Capital: money for real estate, equipment, and so on
Two primary sources of business capital are:
Lenders

people who lend money to the business in return for a
contracted rate of interest or return for their investment
Stockholders
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people who buy shares of stock in the company
part owners of the company
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SOLE PROPRIETORSHIPS,
PARTNERSHIPS, AND
CORPORATIONS
Sole Proprietorships or Partnerships
Owners are personally liable for their company’s
losses
Owners are subject to lawsuits for parties with a
claim against the company
Corporations
Limited liability for shareholders—to the extent of the
assets held by the company
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PRIVATE AND PUBLIC
CORPORATIONS
Private Corporations
Vast majority of U.S. corporations are private
Shares not sold publicly
Public Corporations
Shares can be traded openly
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HOW BUSINESSES RAISE MONEY
Primary Capital Market
selling stocks and bonds directly to public investors
Secondary Capital Market
stockholders buy and sell shares of stock from one
another with the help of brokers
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THE STOCK MARKETS
Exchanges
NYSE
AMEX
Over-The-Counter (OTC)
NASDAQ (National Association of Securities Dealers Automated
Quotes)
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STOCKBROKERS
Someone who assists you with purchasing
stocks and bonds
THE SECURITIES AND EXCHANGE
COMMISSION
Establishes and enforces regulations which
protect the investing public from unfair practices
in the securities market
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PROSPECTUS
a document that discloses financial information
about the company and is filed with the SEC
ACCOUNTING
Publicly traded corporations are required to have
their annual reports prepared by an outside
accounting firm.
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Lesson 2.3
The Investment Supermarket
Goals
Describe the relationship between risk and
return.
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RISK AND POTENTIAL RETURN
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lowest
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low
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relatively low
intermediate
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relatively high
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high risk
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Choose investments that are suited to your
particular needs and goals.
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Lesson 2.4
Buying and Selling Stock
Goals
Determine how to buy and sell stocks.
Explain how to read a newspaper stock table.
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THE STOCKBROKER
Fundamental analysis
an analysis of the company itself, its operations, its
position within its industry
Technical analysis
an analysis of the company’s stock, its price, price
movement, trading volume, etc.
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LET THE BUYER BEWARE
It is imperative that each investor develop the skills
to be self-reliant in the stock market.
Stockbrokers earn their salaries from commission
based sales. (conflict of interest)
Investment analysts recommend buying over
selling by a margin of 5 to 1.
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PLACING AN ORDER
Market order
You want to buy or sell a certain number of shares of stock at
the best current available price and you assume your order will
be executed as soon as possible.
Limit order
You want to buy or sell when the stock reaches a certain price.
You will not buy or sell if the specified price is not reached.
Stop order
Your order to buy or sell an order at a specific price changes to
a market order when the specific price is reached.
FILLING AN ORDER
A specialist handles stock sales and purchases
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INSTITUTIONAL INVESTORS
75-85% of stocks are traded by institutional
investors
Institutional investors have a lot of influence on
stock prices
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TYPES OF ACCOUNTS
cash accounts
need to pay for security purchases within three
business days of order
margin accounts
for sophisticated investors who borrow money to
purchase securities
STOCK TRANSACTION DOCUMENTS
confirmation statements are issued after the sale
of stocks
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READING STOCK TABLES
Sym
ticker symbol
Div
dollar amount of annual dividend per share
Yld
% dividend of the stock as a percentage of stock price
PE
price earnings ratio
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Vol 100s
the number of shares traded daily
Hi
the highest stock price for that day
Lo
the lowest stock price for that day
Close
share price at end of trading day
Net Chg
amount of change in closing price relative to prior day
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Lesson 2.5
Stock Market Literacy
Goals
Name the various categories of investment
information sources.
Discuss why acting on inside information is
illegal.
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THE NEED FOR INFORMATION
As a new, long-term investor, you should select
and hold onto a portfolio of good quality common
stocks.
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INFORMATION PROVIDED BY
PUBLIC CORPORATIONS
Annual Report
The 10-K Report
Corporate Quarterly Reports
News Bulletins
8-K Report
13-D Report
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INSIDE INFORMATION
It is against the law for investors to act on inside
information.
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NEWSPAPERS AND MAGAZINES
local daily newspaper
excellent source of information on local companies
The Wall Street Journal (WSJ)
respected source of financial information
business magazines
Business Week, Forbes, Better Investing
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BROKERAGE FIRM RESEARCH
REPORTS
Research reports written by the firm’s analysts
are available for free when you use a full-service
stockbroker.
You should know the firm’s relationship to the
stocks it recommends purchasing.
dealer
underwriter
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BROKERAGE FIRMS OR MUTUAL
FUND COMPANIES
www.ml.com
www.schwab.com
www.fidelity.com
www.vanguard.com
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SITES FOR INDIVIDUAL
INVESTORS
money.cnn.com
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INVESTMENT INFORMATION ON A
SPECIFIC COMPANY
www.sec.gov/edgar.shtml
www.hoovers.com/free/
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GENERAL INVESTMENT
EDUCATION INFORMATION
www.betterinvesting.org
www.aaii.org
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RADIO AND TELEVISION PROGRAMS
PBS
Wall Street Week
Nightly Business Report
WOR Radio Network
The Dolans
Public Radio International
Marketplace
SOUND Money
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