unit 4: investments notes

Mr. ElsesserMr. Elsesser

Wall Street IWall Street I

Unit 4: Guidelines Unit 4: Guidelines for Investorsfor Investors

Who is making Investments? Investors:

Those who buy stocks for a safe, steady return in the form of dividends and/or capital gains.

Speculators:Those who tend to take risks with their

investments in the hope of making a big and quick return on their moneyEx. Investing in an unknown new

corporation.

1) Income Stock:1) Stocks of companies whose dividends

are relatively large and stable.

Growth Stocks: 1) Stocks of corporations that retain most

of their earnings.

1) Emerging Stocks:1) Refer to new corporation’s stocks.

4) Blue Chip Stocks:1) Stocks of corporations that have been profitable

throughout the years and that have a history of paying dividends at regular intervals.

2) They have a national reputation for quality and reliability.

3) They have the ability to operate profitably in good and bad times.

5) Cyclical Stocks:1) Stocks of corporations that tend to parallel

the cycles or swings of the economy.Ex. Housing, automobile, and airline

industries.

Economy Cyclical Stocks

Economy Cyclical Stocks

6) Defensive or Staple Stocks

1) Market value doesn’t get hurt as badly when economy goes down.Ex. Food,

pharmaceutical companies.

7) Penny Stocks: Stocks whose prices are less that $1 Considered very risky Part of OTC – can be found on pink

sheetsPink Sheets:

listing of stocks printed on pink paper and published every day.

Stock Market Psychologist – An investor who understands the

emotional highs and lows of the stock market.

Ex. Rumors, opinions, fads can all send the market up or down.

Dollar Cost Averaging – Investment strategy in which an

investor buys the same stock with the same amount of money at

regular intervals for a long period of time.

Stock Dividend:A dividend that is paid as additional

stock rather than as cash.

Stock Split:The lowering of the stock price by

issuing more shares to current shareholders.

Ex. 2 for 1

You had 1 share at $100Now, you have 2 shares at $50

Possible reason for a stock split:Lower stock price will attract more investors.

Institutional Buying: Is the purchasing of a large block of stocks

by an institution rather than by an individual investor.

Ex. Insurance companies, banks, mutual funds.

Buying and selling stocks in such large blocks can dramatically affect the price of stocks.Ex. Cause of the Oct. 1987 crash; DJIA

plunged 508 points in a matter of hours

Buying on Margin:Investor purchases stocks with

money borrowed from a broker. Up to 50% off purchase price.

Margin Account: Minimum $2,000 account opened with broker in order to buy on margin.

Used as collateral. Leverage:

Borrowing money to make money

Crash of ’29: Stock market crash

that was brought on, in part, by no set requirements for buying on margin.

Crash of ’87: Stock market crash

that was brought on, in part, by large institutional buying.