The Stock Market: Risk and Reward

11/17/2009

What is a stock? Corporations sell a share of stocks to

raise $ to fund their operations• Just like bonds• Loan

When you purchase a share you are purchasing ownership in that company• If you buy 1 share of a 100 share company

People buy stock to make money Why would a company rather borrow

from you rather then the bank?

Stock Vocab Share – Piece of stock Portfolio – list of all stocks you own Every stock has a symbol

• F• WMT• GOOG• YUM

Rewards of Buying Stock PROFIT

• Ways to make profit Dividends – a portion of profits paid to stock holders Done quarterly (4x a year) No profits, no dividends

Capital Gains – Sell for more then you bought it for Capital Loss – lose money when sold

Taxes

Stocks Types of stock

• Income Stock - Pay out their profits Dividends

• Growth Stock – Keep Profits Capital Gains Grow faster Riskier

Stock Market: Risk/Reward

Stock Splits – the division of a single share into more than one• Number of stocks doubles, price is cut in

half.• Occurs when $ of a stock is getting too high

Dicks Sporting Goods

400 Shares

$50

$2000 Total

Dicks Sporting Goods

200 Shares

$100

$2000 Total

Stock Risks Risks of Stock

• Firms may earn little to no profit which would cause stock prices to fall Company goes bankrupt

You lose all the stock’s value Capital Loss – sell at less than you bought it for

Which stocks to buy? Stock Size

• Micro Cap – less than $500 M• Small Cap - $500 M - $2 B• Mid Cap - $2 B - $10 B.• Large cap - $10 B. - $100 B.• Mega Cap - $100 B or more

Large stocks are more stable, but have less potential for growth.

Small companies are more likely to grow, but are less stable.

NameSymbol Mkt cap

Exxon Mobil XOM$353,56

2

Microsoft MSFT$250,16

6

Wal-Mart Stores WMT$194,53

8

Apple Inc. AAPL$183,50

6

JPMorgan Chase JPM$178,14

7

Google Inc. GOOG$175,28

2

Procter & Gamble PG$168,25

1

Johnson & Johnson JNJ$166,83

7

General Electric GE$161,52

8 Int'l Business Mach. IBM

$157,778

Berkshire Hathaway BRK.A

$156,099

Chevron CVX$153,78

3

AT&T Inc. T$151,80

7

Bank of America BAC$140,30

8

Cisco Systems CSCO$140,00

9

Wells Fargo WFC$137,19

4

Coca-Cola KO$123,19

7

Pfizer Inc. PFE$116,42

3

Hewlett-Packard HPQ$115,13

9

Intel Corporation INTC$110,72

8

The Stock Market: Risk and Reward

Diversify Sectors• Communication – VZ, T• Capital Goods – Cat, DE, BA• Consumer Staples – JNJ, KFT• Healthcare – Pfizer, Merck• Technology – Dell, IBM• Transportation – F

The Stock Market: Risk and Reward

What makes price change?• Rumor• Speculation• Good News• High Profits• Bad News• Low Profits• Mergers• Corruption/Scandal• Recalls• Luck

How are stocks traded? Contact a stockbroker

• Stockbroker – a person who links buyers and sellers of stock – experts Charge commission

Stock is bought/sold at a stock exchange• Stock exchange – markets for buying/selling

stock• The major stock exchanges are NYSE and

NASDAQ

Stock Exchanges NYSE – New York Stock Exchange.

• 9:30 am – 4pm• Located on Wall Street in New York City, NY• Largest and most established companies• Blue Chip companies are the largest and

best known companies – safe and steady investments

• 1-3 letter symbols

Stock Exchanges NASDAQ – (National Association of Securities

Dealers Automated Quotations)• 4 letter symbols• Technology Co’s• No trading floors• Prices are broadcast over TV/Computers• Usually riskier

Measuring Stock Performance

Bu Market - market rises• Investors expect GREATER profits and BUY

stock Bear(Bare) Market – Market drops

• Investors expect LOWER profits and SELL stock

Dow Jones Dow Jones Industrial Average (DJIA) –

an average of 30 companies on NYSE• 14093 Oct 12, 2007