chapter 11.2 notes why invest?. basic investment considerations risk-return relationship – the...
TRANSCRIPT
Chapter 11.2 notes
Why invest?
Basic Investment Considerations
• Risk-return relationship – the more your risk, the higher the potential return
• Investment objectives – retirement, vacations, college fund?
• Simplicity – don’t invest in something you don’t understand
• Consistency – invest consistently over long periods of time
diversification
• Putting money into different investments, different risk levels, etc.
Chapter 11.3 notes
Stocks
The basics
• You invest in a stock at a certain price per share
• You make money when the price goes up
• Called capital gains
2 types of stock
• Common – gives voting rights
• Preferred – gives a share of profits, but no voting rights
Organized Stock Exchanges
• Stock is sold through exchanges• Securities Exchanges – places where
buyers and sellers meet to trade securities• New York Stock Exchange (NYSE) –
oldest and largest original exchange; in NYC; use auctioning process through face to face trading; now a lot of trades are electronic
What it looks like
Outside on Wall St. Inside on the floor
Over-the-Counter Markets • OTC – electronic marketplace for securities
that are not traded on an organized exchange.
• National Association of Securities Dealers Automated Quotation (NASDAQ)
• most important OTC• largest electronic stock market• trading is done w/ a computer and
telecommunications network that connects investors in over 80 countries
• over 4,000 stocks
Measures of Stock Performance
• Dow-Jones Industrial Average – most popular and widely publicized measure of stock performance. 30 stocks including B of A, Exxon, Coke, GE, Wal-mart and Disney; measured in points
• Standard and Poor’s 500 – measures price changes of 500 stocks
Bull vs. Bear
• Bull v. Bear Markets – Bull = strong w/ prices going up for a while; Bear = “mean” market, w/ prices falling sharply for several months
The Bronze Bull