020910 econ investing part 2 50m

Good Day!

DRAW A LINE SEPARATING TODAY & YESTERDAY1) Write: Date: 02/09/10, Topic: Investing Part 22) On the next line, write “Opener #17” and then:

1) Plot your mood, reflect in 1 sent.2) Write down: Dow % Change, NASDAQ % Change, and your current stock %3) Respond to the opener by writing at least 2 sentences about:Your opinions/thoughts OR/ANDQuestions sparked by the clip OR/ANDSummary of the clip OR/ANDOther things going on in the news.Announcements: NoneIntro Music: Untitled

Agenda1) Stock Market Part 22) Mutual Funds and ETFs

End Goal, you will be able to…1) What can I do other than stocks?

Reminder1) Print out Stock Portfolio by Thurs2) Test 1 Debrief + Diploma list?

Participation (10 points a week)Negative Mark: Minus 2 Points Each0 Check: 6 Points1 Check: 7 Points2 Checks: 8 Points3 Checks: 9 Points4 Checks: 10 Points 5 Checks: 11 Points (+1 EC)6 Checks: 12 Points (+2 EC)7 Checks: 13 Points (+3 EC)8 Checks: 14 Points (+4 EC)

TEST EXTRA POINTS1) If you score below 60, you can

retake for max of 60 (anytime)

2) If you score below 60, you can also come see me during tutorial for 10 points (tutorial soonest after the test)

3) If you score between 60-70, , you can also come see me during tutorial for X points need to get to max of 70 (tutorial soonest after the test)

QUESTIONS ABOUT THE TEST?

Debtors: Owe compounding interestMost Americans are debtors, so when

interest goes up, it hurts them because their interest terms of borrowing like on credit cards go up. They get poorer.

Investors: Earn compounding interestMost Americans fail to do this, but most

Americans are poor, don’t be most Americans. When interest goes up, they earn more. Money makes them money!

Borrowing of edu/biz also an investment!

ReviewReal Interest/Real Profit Rate:Interest rate minus inflation. Shows how

much money you are really making.

Example of Bank’s Profit Model:Loan: @ 6%Savings Rate: @ 0.25% Profit Rate: 5.75%Inflation: 3%Real Profit Rate: 2.75%

Be the saver (investor) not the borrower.Though smart borrowing is an investment like

borrowing for tuition or to start/expand biz.

Saver

Bank Gives Saver Interest

Bank Charged Lender Interest

Bank Pockets the Difference

Why do investors get interests?Companies to Raise Money to Grow their Biz:a) Bank loan: Biz give % to bank to get $ loanb) Corporate Bonds: Biz give % to get $ iou from

investors (first to be paid back in bankruptcy)c) Stocks: Biz get $ by selling shares of

ownership (share profit)d) Private Investments (venture capitalists,

private equity firms): Privately sales shares

Review1) Bonds: IOUs, gov+biz borrow at fixed rates +

lengths of term. Reliability Rated: AAA-D “Junk”

2) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

2) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

2) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

Corporation Basics1) Private Company: Biz owned

privately. Finances are private2) Corporation/Public Comp: Biz

that shares bought/sold. Finances under gov monitoring.

3) Board of Directors (BoD): Elected by shareholders to hire CEO and set major policies

a) Share Vote: Each share equals a vote. Votes elect a BoD

4) CEO: Hired by BoD to run daily operations

5) Duty to Shareholder: Maximize profits

5) Stocks Price: Price based on supply + demand. Demand =“perceived” company health

Brokerage Firm: Place to buy investments: stocks, mut. funds, bonds

E*Trade (www.etrade.com)$10 per TradeMinimum Starting Amount $100018 Years Old

Finding Stock Info:www.finance.yahoo.comwww.finance.google.comwww.reuters.com/financewww.money.comStock Symbol: 1-4 Letter Company Stock IDStock Market Hours:9:30am-4:00pm East (6:30am-1:00pm West)

Should I buy and sell short term?a) Investing is investing: It’s not a game, you buy

b/c you want to partially own a company, and share in their success.

b) Day trading: Is stressful and collectively leads to market volatility

c) Capital Gains Tax: You must file taxes on any profits, and taxes are higher if held less than 1yr

3) Stock Orders: a) Buy: Paying for new sharesb) Buying on Margin: Borrowing money from

the brokerage to buy stocks (Adv traders).c) Sell: Sell shares you currently ownd) Sell Short: Selling a stock you don’t own,

you’ll buy the stock later to pay off the brokerage (Adv traders).

e) Limit Order: Buying a stock at a price you set.

f) Stop Order: Auto sell a stock at a price you set.

4) Stock Data: (verify you have this in last week’s notes)

Last Trade: Market price for a shareOpen Trade: Price it opened in morningDaily Range: Today’s high/low range52 Week Range: Last 12 mo. high/low range

a) Market Cap: Stock price X number of shares circulating. Sign of how big the comp is

b) Volume: Number of shares sold that dayc) Beta: How likely does it swing up/down, 1

is market average, over 1 is more volatile

d) EPS (Earnings Per Share): Net Income ÷ Shares Circulating (Higher is better, more earnings per share: how much earnings per each share of stock, not all earning always given back to shareholders, sometimes re-invested)

e) PE (Price Earnings Ratio): Stock Price ÷ EPS (Lower better, more bang for your buck: how much you are paying for $1 of comp’s current annual earnings, ROI point, if biz grow fast, ROI can be faster).

Stock Market Basic Formulas Review1) Market Cap: Calculating the Size of Companies Formula: Stock Price X Number of Shares Example:Stock Price: $200 a Share, Number of Shares: 2Market Cap=200 X 2 = 400Market Cap=$400 2) EPS: Earnings (Net Income) Per Share (Bigger Better)Formula: Net Income ÷ Number of Shares (Tip: EPS, E-Earnings go on top of the formula, S-Shares

on the bottom)Example:Net Income: $100, Number of Shares: 2EPS=100 ÷ 2 = 50EPS=50 

3) PE Ratio: Price Earnings Ratio (Lower Better)Formula: Price/EPS (Tip: PE, P-Price goes on top of the formula, EPS on the

bottom)Example:Stock Price: $200 a Share, EPS: 50PE Ratio=200 ÷ 50 = 4PE Ratio=4 Summary:So if 1 share gets you $50 of profit, but it takes you $200

to buy one share, it would take you 4 years to break even (unless the company grows, which would reduce the time); another way to see it, PE Ratio shows you how much money you are paying to get $1 of profit. In this example, I’m paying $4 for every $1 of profit.

Work #17a, Title “Stock Practice”Use a calculator, and work with a partner.

1) a) Mattel has 393 million shares circulating, the price of the stock is $13, what is its market cap?

b) Mattel made $560 million in income and has 393 million shares, what is its EPS?

c) Using the stock price of $13, and EPS above, what is the PE ratio?

Work #17a, Title “Stock Practice 1”Use a calculator, and work with a partner.

2) a) Google has 312 million shares circulating, the price of the stock is $387 what is its market cap?

b) Google made 3.690 billion in income and has 312 million shares, what is its EPS?

c) Using the stock price of $387, and EPS above, what is the PE ratio?

Debrief:GoogleMarket Cap: $120 bilEPS: 11.82PE: 32

Mattel:Market Cap: $5 bilEPS: 1.42PE: 9Div Yield: 5.7%

Work #17a, Title “Stock Practice 1”Use a calculator, and work with a partner.

3) Both read the handout, and write down if you think if Google is over priced? Explain. (GOOG: $533)

Also ask your partner what is a PEG ratio if you aren’t sure.

5 Reading/Film Qs Come From These Work Sections

Notes #17a, Title: “Mutual Funds” 1) Mutual Funds: A pool of money invested by a

professional in a group of stocks (picked through a specific strategy: lo/hi risk, etc).

a) Net Asset Value (NAV): Price based on the (stock prices) of the pooled investment divided by the number fund shares. Managers of the fund take a fee/commission.

Like stocks, you money when you sell the mutual fund or are paid dividends.

Workbook Check (100 Points): Make Sure:1) Name + Period written on cover

AND side of notebook2) Opener #s are highlighted3) Plastic bag inside inside cover4) Schedule/syllabus inside cover5) Reference sheets inside cover

Staple with the staples grappling in.

Homework: 1) Study today’s notes + work sections

for a possible workbook quiz.2) Print 1st page of stock portfolio AND

follow Marketplace Sheet instructions for end of week Marketplace.

Workbook Check: If your name is called, drop off your workbook with Mr. Chiang (if requested, points lost if your workbook is not turned in)