Transcript Market Update

Jason Matteo
Technical Director
Goals…
•
Understand the basics of investing and
of investment methods and strategies
•
Learn from each other building your
knowledge and your network
•
Get Bloomberg certified
•
Have fun
Weekly Lessons
Each week will have a brief topic related to investing
9/5- Basic Overview
9/12- Bloomberg Professional Certification
9/19- Example Online Broker Overview
9/26- Technical vs. Fundamental Analysis
10/3- The Power of Compounding, Dividends, DRIPs
10/10- Mutual Funds & ETFs
10/17- Bonds
10/24- Options
11/7- Futures
11/14 -Forex

Disclaimer
All information is intended for
educational/informational purposes only
and is not a recommendation or
endorsement of any particular
investment or investment strategy
 I am not an expert and I will not pretend
to be. My goal is for everyone to benefit
from each other by shared knowledge

9/5 Investment Basics
Questions to be answered:
 How should one invest? And why?
 Invest in what?
 How does one
invest?
 What
are the
mechanics?
Basics

Saving
 provides funds for
emergencies and for
making specific
purchases in the near
future

Investing
 Focuses on
increasing net worth
and achieving longterm financial goals
Investing

Buying an investment
 Putting money into an asset that generates
a return

Speculation
 Not the same as an investment
 Purchasing assets, equity or debt because
of an assumed value
 Ex: Gold coins, baseball cards, gems
What to Invest In – The Basics
Asset Classes
 Stocks
 Bonds
 Cash
There are others but these
are the fundamental asset
classes. Start with these
before getting fancy.
Asset Classes
•
Stocks
– Ownership in a corporation
•
Bonds
– Corporate and government debt
– Must be repaid
•
Cash
–
–
–
–
Checking, savings accounts
Money market accounts
CDs
US Treasury Bills
Types of Stock
Common stock
 Preferred stock

 Convertible
Investing in Stocks

Common Stock
 Purchasing a part of
the company
 Possible dividends
and capital
appreciation
 Many are limited
liability
 Companies may
repurchase their own
stock

Types of Common
Stock
 Blue-Chip Stocks
 Growth Stocks
 Income Stocks
 Speculative Stocks
 Cyclical Stocks
 Defensive Stocks
BASIC STOCK TERMS
Basic Terms

Earnings per Share: The amount of profit to
which each share is entitled

Going Public: Slang for when a company is
planning an IPO.

IPO: Short for Initial Public Offering. An IPO is
when a company sells stock in itself for the first
time.
Basic Terms

Market Cap: The amount of money you would
have to pay if you bought every share of stock
in a company. Multiply outstanding shares by
stock price

Share: A share represents an investor's
ownership in a "share" of the profits, losses,
and assets of a company.
Basic Terms

Ticker Symbol: A short group of letters
that represents a particular stock (e.g.,
”Google" is referred to as ”GOOG".)

Underwriter: The financial institution or
investment bank that is doing all of the
paperwork and orchestrating a
company's IPO.
Basic Terms

Bull Market
 A market in which prices are rising

Bear Market
 A market in which prices are falling

Recession
 A period of temporary economic decline
 AKA the past 5 years…
Mutual Funds vs. Individual Stock
and Bond Trading

Mutual Funds
 Professional
management of
investing
 Minimal transaction
costs
 May offer higher
returns
 Many to choose from

Individual Stock and
Bond Trading
 Requires time and
expertise
 Higher transaction
costs
 Less likely to have
proper diversification
Types of Bonds

Corporate
 Debenture

Federal Government
 Treasury Bonds (T-Bonds, Treasuries)

Municipal bonds
 General obligation
 Revenue
Bonds

Investing
 Produce steady income
 If held until maturity, bonds are a safe
investment with low risk

Par Value
 Face value or return at maturity

Coupon interest rate
 Percentage of par value paid out annually
Types of Bonds

Corporate Bonds

 Allow firms to borrow
 Tax-exempt
 Serial maturities
 Not entirely risk free
money

Treasury and
Agency Bonds
 Agency bonds are
virtually risk-free with
higher interest rates
than Treasuries
Municipal Bonds

Junk Bonds
 Low-rated or high-
yield
 Greater risk of default
 Callable (issuer can
call them back and
reissue at an altered
interest rate)
Risk
In finance, typically defined as standard
deviation of returns.
 What are the risks for:

 Stocks
 Bonds
 Cash
Asset Allocation
What
percent of your money should be in each
asset class?
For example:
○ 70% stock, 25% bonds, 5% cash, or
○ 30% stock, 65% bonds, 5% cash
The answer depends upon:
 Your investment objective
 Your tolerance for risk
Common rule-of-thumb
% stock = 100 - your age
Risk – By Asset Class
Worst Annual Return
Since 1925
Average Annual Return
Since 1925
-43.4%
9.6%
Stocks
(-67.6% worst 12 mo.) (162.9% best 12 mo.)
Bonds
Cash
-7.8%
5.5%
.1%
3.7%
Sources: personal.fidelity.com, Morgan Stanley, www.efficientfrontier.com, Federal Reserve – St. Louis
“Typical” Portfolio Allocations
Stocks
Bonds
Cash
Conservative
20%
55%
25%
Moderately
Conservative
40%
50%
10%
Moderate
60%
35%
5%
Moderately
Aggressive
70%
25%
5%
Aggressive
80%
15%
5%
Summary
Asset allocation is the single biggest
determinate of portfolio results
 Major asset classes

 Stocks
 Bonds
 Cash
How you allocate your investments
depends upon the returns you need and
risk you can take
 Rule-of-thumb: %stock = 100 - age

Where and how do I start?
(Starting an account, resources for learning)
Keep learning!

Make sure you understand the basics





Investopedia (www.investopedia.com)
Motley Fool (www.fool.com)
Investor Guide (www.investorguide.com)
These sites also have introductions to certain investing
strategies
Books (learn from the greatest investors)





How to Make Money in Stocks (William O’Neil)
Beating the Street (Peter Lynch)
Lessons from the Great Stock Traders of All Time (John Boik)
The Warren Buffet Way (Robert Hagstrom)
The Intelligent Investor (Benjamin Graham)
Brokerages

Need a medium to trade through
(brokerages)

Choosing a broker
 full service vs. discount
○ Fees (Commission)
○ Services
○ Minimum balance
http://www.stockbrokers.com/compare
Brokerages
Videos
http://www.investopedia.com/video/play/wh
at-are-stocks/
http://www.investopedia.com/video/play/wh
at-moves-stock-prices/
http://www.investopedia.com/video/play/wh
at-is-the-dow-jones-industrial-average/
Next Meeting 9/12

Bloomberg Professional Certification
Bloomberg Professional Service
and the Bloomberg Terminal
Bloomberg
Named for Bloomberg L.P. founder
Michael Bloomberg.
 Current mayor of NYC for a little while
longer…until Anthony Weiner aka Carlos
Danger “the peter tweeter” wins the
upcoming election.

Bloomberg Terminal
•
•
•
•
Computer system that allows users to
monitor and analyze real-time financial
market data movements
The system also provides news, price
quotes and an immense database
Most financial firms use it
http://www.youtube.com/watch?v=ALNjo
N-taog
Bloomberg Terminal (cont.)
Bloomberg (cont.)
•
It costs $1500 a month
• We have two here at UF, one in Hough
Hall and one on 3rd floor Library West
• FREE for students!
• The certification is free also!
Getting Started
http://businesslibrary.uflib.ufl.edu/bloom
berg
 Go to Club West. The terminal is located
on the 3rd Floor behind the services
desk next to the microfilm area
 Ask a receptionist about it and they will
type in a magic password so you can
use it

Certification
Certification
Takes about 8 hours, I was able to
knock it out all in one sitting, but you can
work on it a little at a time
 Bring headphones so you can watch the
videos with sound and not piss off
everyone in the library
 There is a sign in sheet where you can
reserve time slots if someone else is
currently using the machine

Why Get Certified
Its cool and you learn a lot. Using
double monitors automatically makes
you feel more important
 You can put something else on your
resume other than your name
 Many companies use it so the fact you
even know what it is AND have used it
before will make recruiters SMILE

“Yay he knows how to use
Bloomberg!”
Next Meeting 9/19

Example online broker overview
Random Ass Videos
E-Trade Baby
E-Trade Baby 2
$#!* People Say About Investing
Stock Market Rap
Technical vs. Fundamental
Analysis
Their Main Differences

At the most basic level, a technical
analyst approaches a security from the
charts, while a fundamental analyst
starts with the financial statements.
http://www.investopedia.com/video/play/fu
ndamental-versus-technical-analysis/
Fundamental Analysis
Looks at financial data: revenues, profits
and losses, business trends
 Seek growth factors.
 Examine macroeconomic factors such
as a company's business sector and the
overall economy in relation to a
company's lines of business

Technical Analysis
Looks only at price and volume action
 All information about a stock is reflected
in the share price
 Analyzing the price movements will
predict where a stock price will go from
here
 Indicators: MACD, crossovers,
divergence, RSI etc.

Pros and Cons
Proponents of fundamental analysis
think technical analysis is voodoo
mumbo jumbo and doesn’t work.
 If fundamental analysis works so well
then why isn’t everyone rich?

Conclusion

A wise investor will understand and take
into consideration both methods of
analysis.
Next Meeting 10/3

The Power of Compounding, Dividends,
DRIPs
The Power of Compounding,
Dividends, DRIPs
“Compounding
interest is
the most powerful force in
the universe”
-Albert Einstein
http://www.investopedia.com/video/play/wh
at-is-compound-interest/
The Rule of 72

A rule stating that in order to find the
number of years required to double your
money at a given interest rate, you
divide the compound return into 72. The
result is the approximate number of
years that it will take for your investment
to double.
http://www.investopedia.com/video/play/rul
e-of-72/
Dividend

A cash payment (usually quarterly) to
shareholders out of its profits.
Comic Relief

If you had bought $1000.00 worth of
Nortel stock one year ago, it would now
be worth $49.00.

With Enron, you would have $16.50 of
the original $1,000.00.

With WorldCom, you would have less
than $5.00 left.

If you had bought $1,000.00 worth of
Budweiser

(the beer, not the stock)

one year ago, drank all the beer, then
turned in the cans for the 10 cent
deposit, you would have $214.00.

Based on the above, my current
investment advice is to drink heavily and
recycle.
DRIPs
Dividend Reinvestment Plan
 Broker automatically uses dividend to
purchase more shares of the company
 Most online brokers offer them for free.
 Best part is you do not have to pay
transaction commission (still have to pay
taxes though )

Drawbacks
Frequent purchases of fractional shares
becomes somewhat complicated for tax
purposes and documentation
 However most online brokers do a good
job at automatically generating
statements and tax forms

Next Meeting 10/10

Mutual Funds & ETFs