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Think Train

Think Train. A (Very) Basic guide to investing and the stock market. Investment. What is Investment? “The act of placing capital into a project or business with the intent of making a profit on the initial placing of capital” 1 Why Invest? Beat inflation Achieve financial targets

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Think Train

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  1. Think Train A (Very) Basic guide to investing and the stock market.

  2. Investment • What is Investment? • “The act of placing capital into a project or business with the intent of making a profit on the initial placing of capital”1 • Why Invest? • Beat inflation • Achieve financial targets • Fund businesses Financial Dictionary

  3. Investment • Types of Investment • Asset purchase e.g. House, painting • Bond Purchase • Shares of a company • Risk Association • “Act of God” • Rights issuer • Market Crash

  4. Investment • Portfolio • Collection of investments • Diversification • Owning multiple types of asset • Reduces risk Source: Elton, Gruber 1977

  5. Markets • What are Stock Markets? • Economic markets that allow companies to sell shares (ownership) to the public. • What are Stock Exchanges? • Physical locations to allow these transactions, e.g. NYSE, LSE, NASDAQ. • What are Stock Market Indices? • Measure particular sections of the stock market • Can be national or international. Can show strength of particular economies e.g. S&P 500, North America; FTSE 100, U.K; Nikkei 225, Japan.

  6. Markets Relationship to the “Real World” Start of Iraq War

  7. Markets • Terminology • Shares • Derivatives and markets • Futures and markets • Bonds and markets

  8. Markets • Buying Shares • Done through a Stockbroker • Full Advisory – require minimum capital • Discretionary • Execution only • Through a Bank • Investment ISAs • Offer varying degrees of risk

  9. Markets • The Long & Short of it • “Going long” – Own the security and will profit if the security rises in value. • See ExxonMobil 2003 Share prices increases tenfold £1000 Buy 10 shares in Dalgarno’s Luxury Massages at £10/ share £100 Posts record breaking profits after 1st year and opens 5 new parlours Pays £1000 Dividend

  10. Markets • Selling Short • Hoping the share price falls • Process of borrowing, selling, and re-buying shares • Borrow from a lender, usually a broker Borrow 10 shares in Dalgarno’s Luxury Massages at £10/ share Share price falls to £8/ share Immediately sell shares at £10/ share £100 Return shares to lender. Keep the difference. £20 Buy back shares at £8/ share £80

  11. Markets Case Study – Warren Buffett, the intelligent investor 1. The company should be soundly managed. 2. The company has demonstrated earning capacity with a likelihood that this will continue. 3. The company should have consistently high returns. 4. The company should have a prudent approach to debt. 5. The businesses of the company should be simple and the investor should have an understanding of the company. 6. Assuming that all these thresholds are satisfied, the investment should only be made at a reasonable price, with a margin of safety. This is always a matter for independent judgment by the investor. 8. Investors need to take a long term approach.

  12. Markets Portfolio contains 36 companies

  13. Markets George Soros – The man who broke the bank World’s most well- known speculator Borrowed $10bn of pounds sterling, sold, and re-bought, as the Bank of England changed the exchange mechanism. Soros made ~$1bn.

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