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Stock as an Investment

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  1. Stock as an Investment

  2. Capital Appreciation: stock may become more valuable and the holder can buy low and sell high • Dividend: investor gets a share of the profits returned in cash in proportion to his or her ownership

  3. Types of Stocks • Income Stock: Associated with profitable companies that offer steady dividends • Growth Stock: People plan to keep the stock for a long time and expect a large capital appreciation

  4. Preferred Stock: Gives the investor a fixed share of the profits before common shares

  5. Stockbroker: Buys and sells stock for a living • Usually they work for a brokerage house that is a member of several stock exchanges • They have a “seat” on the exchange so the company can conduct transactions through that market

  6. For every transaction made, the investor is charged a percentage (called a commission) • Usually from 1-5% of each transaction or trade

  7. If you decide to buy 1,000 shares of IBM, you will conduct a transaction on the New York Stock Exchange • You will be buying stock that has usually been issued and held by several other investors

  8. Transactions take place on a secondary market because they have previously been issued

  9. Markets like NYSE have companies offer stock for the first time- known as the Initial Public Offering (IPO)

  10. Investment bankers decide how much a company’s stock should sell for and how many shares should be offered • Initial offerings are sold to larger investment firms on a primary market

  11. Once you own a piece of a company (stock), you should keep an eye on how the company is performing • They will send you a copy of their annual report • This report will have details about the profits, costs, and debts

  12. 52 Week High- The highest price paid for the stock in the last year (the last 52 weeks) • 52 Week Low- The lowest price paid for the stock in the last year (the last 52 weeks) • Ticker Symbol- the letters that stand for the company on the exchange • Helpful hint: four letters is for the NASDAQ, fewer than four letters is for the NYSE

  13. Yield- The percentage return on the investment. Divide the annual dividend by the current price of the stock. • Price/Earnings Ratio- the current stock price divided by the company’s earnings per share. The lower the number, the better the value. • Volume- the amount of shares that traded hands that day

  14. High- The highest price for stock that day • Low- The lowest price for stock that day • Last- The last price offered per share that day • Change- the net change from the previous day’s closing price (you will see a + or -, or maybe an arrow that points up or down beside the number)

  15. Main National Markets • New York Stock Exchange (NYSE) • Most important market in the U.S. • More traditional companies list their stock here

  16. American Stock Exchange (AMEX) • Caters to smaller, industrial companies • Merged with NASDAQ but are still two separate markets

  17. National Association of Securities Dealers Automated Quotation System (NASDAQ) • Smaller, unproven companies that want their stock offered nationally will often go to this market • Also brings in newer, high-tech firms (Intel and Microsoft)