Presentation Transcript

1. Chapter 19 Securities Markets

   Introduction to Business

2. What Are Securities Markets? Financial markets for stocks and bonds Assist businesses in finding capital Provide private investors with a “store” to buy and sell investments Problems with our current markets Companies sell securities only once – the “primary market” Investors buy and sell on the secondary market – companies only make money from this on stocks that they own in other companies.
3. The Need for Capital Businesses would rather take out loans or work off of retained earnings Businesses instead sometimes have to go to the public money markets Issue stocks or bonds to raise money.
4. People in the Investment Process Investment bankers Those who assist in the purchase and sale of investments Lehman Brothers, Solomon Brothers, Merrill Lynch ALL GONE Goldman Sachs and Morgan Stanley only ones left
5. Bonds Sort of like corporate IOUs Promises repayment of future amount, plus interest Bonds are rated in terms of the risk of their repayment (yes, sometimes, they are not repaid, in situations of bankruptcy) A $1000 bond with 5% interest allows the holder to receive $50 each year until the maturity date, when they receive their $1000 back.
6. Pros and Cons of Bonds Pros Bonds allow the firm to maintain its equity Interest is tax-deductible Cons Bonds increase the debt load of the firm Bonded companies are legally responsible for paying the debt back. Some bonds can be converted into common stock.
7. Stock Stock refers to a “certificate” of partial ownership in a company. Dividends are part of a company’s profits that may be paid out to shareholders. Preferred stock Get promise of dividends; first dibs on company assets; but no voting rights Common stock Voting rights; no promise of dividends; last to be paid in a liquidation
8. Pros and Cons of Stock Pros: Stockholders never have to be repaid (they do, however, have a right to their share of the company’s assets) Selling stock does not add to the company’s debt load Cons: Stockholders vote on the future direction of the company; control is given up Dividends are not tax-deductible
9. Stock Exchanges NYSE New York Stock Exchange About $70 billion in securities traded here each day, market value of each > $50M Represents $22 trillion in market capitalization NASDAQ Used to only deal with small firms (market value $8M and up), now those small firms are big!
10. Stock Market Terms Bull market: Stocks are on the rise, great time to buy Bear market: Stocks are expect to fall Capital gains: What you have made on stocks since you bought them Splits: The company offers two stocks for every outstanding share, to induce demand for lower priced stock
11. The Role of the SEC SEC = Securities and Exchange Commission Regulates securities trading Requires prospectus Requires public disclosure of health and behavior Watches for insider trading
12. How to Invest Is it the right time to invest? Warren Buffett on timing the market Taking a look at the health of the market Online Options Fidelity Sharebuilder Scottrade ***Remember, you don’t know anything that isn’t already built in to the price of the stock*** Don’t expect to gain money because you like Nike shoes; you have to look deeper and see whether you believe in a company's long-term ability to grow.