Unit 5 investing part 3 stocks
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UNIT 5: Investing Part 3: Stocks. Dollars and Sense. Review: Investments. Your need for savings will increase as your goals become more expensive. Investing at a young age can lead to better security and economic independence later in life. Investing in Stocks. Why Invest in Stocks?

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UNIT 5: Investing Part 3: Stocks

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UNIT 5: InvestingPart 3: Stocks

Dollars and Sense


Review: Investments

Your need for savings will increase as your goals become more expensive.

Investing at a young age can lead to better security and economic independence later in life.


Investing in Stocks

  • Why Invest in Stocks?

    • Become part owner in a corporation!

    • Earn a high rate of return.

      • Rate of Return: Over the past 100 years, American Stocks have had an annual return of 9.7%

        • Over past 20 years, American Stocks have had an annual return of 13%!


Investing in Stocks

  • Ownership of Stocks

    • Ownership in a corporation is shown in printed form, called a stock certificate.


Investing in Stocks

  • Market Value: the price at which a share of stock can be bought and sold for in the market.

    • What affects price of stock?

      • How is the business doing? Financial reports, business releases.

      • State of Economy. (Which phase of business cycle?)

      • Political Developments


How Do I Make $$$ In The Stock Market?

  • 2005 = Pepsi $31.94

  • Buy Pepsi today at $73.21 Buy 100 shares. $7,321.

  • Imagine 2 years from now…(April 2015)

  • Pepsi’s stock price on April 2015 is now $101.94!!

    • You sell your 100 shares now valued at $10,194!

      • You have essentially earned $2,873! (Amount Buy – Amount Sold)


How Do I Lose $$$ In The Stock Market?

  • Buy Pepsi today at $73.21. Buy 100 shares.

    $7,321.

  • Imagine 2 years from now…(April 2015)

  • Pepsi’s stock price on April 2013 is now $31.94!!

    • You sell your 100 shares now valued at $3,194!

      • You have essentially lost $4,127! (Amount Buy – Amount Sold)


Selecting Stock Investments

  • There is no secret or special formula.

    • It requires: hard work and research.

  • Four-Step Process for Deciding on Stocks

    • Observe and Analyze Economic and Social Trends

    • Determine Industries that will be affected

    • Identify Companies in those industries

    • Decide whether to buy, sell or hold the stock of those companies.


Where are Stocks Sold?

NYSE: New York Stock Exchange

AMEX: American Stock Exchange

Nasdaq: National Association of Securities Dealers Automated Quotations


NYSE, AMEX, Nasdaq

  • Buying Stock = “Trade” when the best bid meets the lowest offer to sell.

    • Stock prices are determined by supply and demand.


Stock Exchanges

  • Compare a Stock Exchange to Ebay…

  • Ebay and Stock Exchanges = Auction sites

    • Seller puts an item up for sale, and several people compete to buy the same item.


“Going Public”

  • Go Public: the process a company takes to offer shares of stock to the public for the first time.

    • Initial Public Offering (IPO): the first sale of a corporation’s public shares.


Why “Go Public”

  • Businesses offer stock for many reasons, that include:

    • Raise Capital

    • Expand Operations/Create Jobs

    • Fund Research and Development of Products

    • Pay Off Debt

    • Provide Employees with Benefits

    • Develop Marketing Strategies

    • Generate Additional Revenue


Selecting Stocks

  • In selecting a specific stock to buy, you should learn something about the business record of the corporation.

  • There is no secret or special formula.

    • It requires: hard work and research.

    • The opportunity to earn a high rate of return attracts people to invest in stocks.


Selecting Stocks

  • When considering stocks, ask the following questions:

    • Has the company been profitable over a period of years?

    • Does the company have growth potential in coming years?

    • How does the company compare with others in its industry?


Identifying Important Figures in Selecting Stock

  • Revenue: The dollar amount of sales during a specific period, including discounts and returned merchandise.

    • When evaluating stocks, revenue growth serves as an indication of a company's health.


Which to Buy

Pepsico 66.02 17.6 p/e

Coke 56.82 16.6 p/e

Who’s got a Better Investment?


Identifying Important Figures in Selecting Stock

  • P/E Ratio: Market Value per Share/Earnings per Share

    • it shows how much investors are willing to pay per dollar of earnings. It shows value.

    • In general, a high P/E means high projected earnings in the future. However, the P/E ratio actually doesn't tell us a whole lot by itself. It's usually only useful to compare the P/E ratios of companies in the same industry


Identifying Important Figures in Selecting Stock

52 Week Range: The highest and lowest price at which a stock was sold in the past year (52 weeks).

High Low Current

Coke 61 43 57

Pepsi 67 47 66


Identifying Important Figures in Selecting Stock

  • Earnings per Share:

    • = Net Income – Dividends / Average Outstanding Shares

    • EPS indicates the profitability of a company.


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