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CHAPTER 3. Stocks. What are we going to learn in this chapter ?. Stocks. What does a stock represent ? What does it mean i f you are a stockholder ? How do you gain wealth when you own a stock ? Common Stock s. Stocks. I ncome S tocks B lue - chip S tocks G rowth S tocks

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chapter 3

CHAPTER 3

Stocks

stocks
Stocks
  • Whatdoes a stockrepresent?
  • Whatdoes it mean if you are a stockholder?
  • How do yougainwealthwhenyouown a stock?
  • CommonStocks
stocks1
Stocks
  • Income Stocks
  • Blue-chip Stocks
  • Growth Stocks
  • CyclicalStocks
  • DefensiveStocks
how stocks work
HowStocksWork
  • STEP ONE

Koray decides to invest in the stock market.

Berna decides to sell 300 shares of Fenerbahce stock to help pay for a new car, eventhoughshe has a richhusband.

  • STEP TWO

Koray has been thinking of investing in the Fenerbahce. He calls his broker, who is a member of the Borsa Istanbul, to get a quote on Fenerbahce.

Berna checks theprices at Borsa Istanbul online.

how stocks work1
HowStocksWork
  • STEP THREE

Koray’s broker and Berna find out the current quote and price for Fenerbahce from an electronic data system that continually updates information directly from the Floor of the Borsa Istanbul.

how stocks work2
HowStocksWork
  • STEP FOUR

Taking into account what he already knows about Fenerbahce, Koray instructs his broker to purchase 300 shares of Fenerbahce at the current market price.

Berna logs into her online brokerage account, which is linked to a brokerage firm that is a member of the Borsa Istanbul, and places an order to sell her 300 shares at the current market price.

how stocks work3
HowStocksWork
  • STEP FIVE

Both orders are sent electronically to the Borsa Istanbul Trading Floor.

  • STEP SIX

A Designated Market Maker (DMM) uses enhanced technology to bring together buyers and sellers, improve prices and serve as a point of accountability.

how stocks work4
HowStocksWork
  • STEP SEVEN

Borsa Istanbultrading engine automatically executes any market or limit order that is marketable against the exchange quote up to 1 million shares. This is called auto-execution.

  • STEP EIGHT

Both orders are represented as auction market orders in order to have the opportunity for price improvement. The DMM oversees all orders to make sure the transactions are executed fairly and in an orderly manner.

how stocks work5
HowStocksWork
  • STEP NINE

After the transaction is executed, notices are sent to the firms originating the orders and to the consolidated tape so that a written record is made of every transaction.

  • STEP TEN

The transaction is reported by computers and appears on the consolidated tape displays across the country and around the world

how stocks work6
HowStocksWork
  • STEP ELEVEN

The transaction is processed electronically, crediting Koray’s brokerage firm and debiting the account of Berna’s brokerage firm. Koray’s broker calls him and tells him at what price he bought 300 shares of XYZ. In a couple of days, Koray receives a written confirmation.

Berna receives confirmation from her brokerage firm electronically on her computer within seconds. These confirmations describe the tradeanditsdetails.

how stocks work7
HowStocksWork
  • STEP TWELVE

Koray settles his account within three business days after the transaction by submitting payment to his brokerage firm for the 300 shares of Fenerbahce, plus any applicable commissions.

Berna’s trade is also settled in three business days. Her account will be credited with the proceeds of the sale of stock, minus any applicable commissions.

what drives stock prices
WhatDrivesStockPrices
  • Financial health of a company
  • Whosestockswouldyouconsiderforpurchase?
  • Likelihoodtolosemoney
  • Announcements
  • Historicalbehavior
  • Future prospects
  • Mergers & Acquisitions
what drives stock prices1
WhatDrivesStockPrices
  • Industry
  • EventhoughHP’sdesktopsalesaregood, wouldyouinvest in it? Why? Why not?
  • Cyclicalindustries
  • Whenwouldyouconsiderbuyingshares of Altınbaş?
what drives stock prices2
WhatDrivesStockPrices
  • EconomicTrends
  • A veryprofitablefirm in Greece: buy orsell?
  • Whichsignalswouldyouconsider?
  • Consumer Price Index (CPI)
  • Shrinkingeconomy
what drives stock prices3
WhatDrivesStockPrices
  • Worldnews
  • FED Announcements
  • EgyptandTemSa
  • Chinaimprovinginvestmentconditions
  • Brazil’sratingbeingimproved
how to read a stock table
HowtoRead a StockTable
  • 52 WeekHighandLow
  • Stock
  • Dividends
  • Yield %
  • P/E
how to read a stock table1
HowtoRead a StockTable
  • Sales 1000s
  • High
  • Low
  • Last
  • Change
how firms issue stocks
HowFirmsIssueStocks
  • Primary market
  • Secondary market
  • Initial public offering
  • Seasoned equity offering
how firms issue stocks1
HowFirmsIssueStocks
  • InvestmentBanking
  • Public offerings
  • Underwriters
  • Howmanyunderwriter/s?
  • Underwritingsyndicate
how firms issue stocks2
HowFirmsIssueStocks
  • Advisory role
  • Preliminary registration statement
  • Red herring
  • Prospectus
  • Publicannouncement
  • Firm commitment
how firms issue stocks4
HowFirmsIssueStocks
  • PrivatePlacements
  • Whybother?
  • Anydisadvantages?
how firms issue stocks5
HowFirmsIssueStocks
  • InitialPublicOfferings
  • Investment bankers
  • Exchange approval
  • Prospectus
  • Roadshow
  • Bookbuilding
  • Revisions
how firms issue stocks6
HowFirmsIssueStocks
  • Why do investors truthfully reveal their interest in an offering to the investment banker?
  • Might they be better off expressing little interest, in the hope that this will drive downthe offering price?
  • Interestexpressed
  • Allocation size
  • Optimism
  • Bookbuilding
  • Underpricing
order types
OrderTypes
  • Market Orders
  • Price-Contingent Orders
  • Stop Orders
slide30

Stock

Market Indexes

stock market indexes
Stock Market Indexes
  • Price-weighted index
  • Portfolio
  • Index
  • The portfolio and the index have…….
stock market indexes1
Stock Market Indexes
  • Market-valueweightedindex
  • Total market value
  • S&P500
stock market indexes2
Stock Market Indexes
  • Equallyweightedindex
  • Rebalancing