Buying and Selling Stocks

1. Buying and Selling Stocks Strategies of Investing – Mr. Yates

2. Who to buy, and who can you buy? • The first step when buying stocks is to decide what company to buy stock in. • You can buy stock in any publicly held corporation, which means that the public can control the corporation. • You cannot buy stock in a privately held or closely held corporation, which are corporations that are controlled either by a small group of individuals or by close friends and family

3. Analysis methods of who to buy • Fundamental analysis is one method, in which you study the company's current management and position in the market. • Technical analysis is another method which is totally based on charts, in which you identify trends the company has, and invest accordingly. • One popular method is just throwing darts at the stock page, which often beats out all the other methods.

4. How the actual buy is done • After you decide what company to invest in, you need to find a broker. • A broker is the only person that can make an order to buy or sell stocks. • There are two types of brokers that every brokerage firm has. • Stockbrokers • Discount Brokers

5. Brokers • The first type of broker is a stockbroker, who researches investments, helps make goals, and give advice on investing. • Discount brokers on the other hand, do not offer advice, and they do no research. • They just are middle men in the transactions. When you give a stockbroker your order, they relay the order to the floorbrokers. • The floorbrokers do all the actual buying and selling, and they hold a seat on the exchange.

6. The Order • After you find a broker and buy the stocks, the broker does the rest of the work. • You just have to call him up and place an order with him. • The most basic order is the market order, where you just ask the broker to buy or sell your stocks at the best price he can get his hands on.

7. Other “Orders” • Another type of order which takes more research and predicting on your part is a limit order. • In a limit order, you tell the broker to trade only when the stock is at a certain price or better. • A stop order is an order which can save you from extreme loss. • In a stop order, you tell the broker to sell your shares if the stock drops too low, and you tell him the price not to let it drop below.

8. Stock Listing (Newspaper)

9. Tracking Stocks • To track how your stocks are doing, you have to look at stock listings. • Stock listings are published in just about every newspaper. • The listings look confusing at first, since they look like a mixture of numbers, but can be a very useful tool when tracking your stock's progress. • The listings are organized into many columns, including the following information : • 52 weeks high and low, company name, • symbol, dividend, percent yield, • PE ratio, volume, • high, low, close, net change

10. Tracking stocks… • 52 weeks high and low This field is a good indicator about a stocks volatility. • Volatility is an indicator of the riskiness and potential for profit that the stock has. • The greater the difference between the high and low, the riskier the stock is for loss and gain. • If the difference between the high and low is small, then there is little potential for either loss or gain.

11. More tracking terms • Company name - This field is usually abbreviated in the listings, and listed alphabetically. • Symbol - This field is a one to four character symbol used as a sort of nickname for the company. • Dividend - This field is listed in dollar format, and it is the cash amount of money that the company will pay you each year for each stock. • Percent yield - This field is calculated by dividing the dividend by the closing price. It just tells you how much of the price of the stock you will be paid in dividends each year.

12. P/E Ratio and Volume • PE ratio - The price-earnings ratio calculates the relationship between the price of a company's stock, and the annual earnings of a company. • It is calculated by dividing the closing price of the stock by the earnings per share of each stock. • Volume - The volume is the amount of stocks that were traded the day before. This number is given in hundreds, so to get the actual number of stocks traded, multiply the number in that field by one hundred. • If a small z is before the number, then the volume is not given in hundreds, and is the actual number of stocks traded.

13. Highs and lows… • High, low and close - These are the highest and lowest prices of the stock the day before, and the closing price for the day before. • This is an indicator of how much the price of the stock fluctuated throughout the previous day. • Net change - This is the change of the price of the stock from the previous day. • This gives you an idea whether the price is dropping or rising.

14. Risky Stock Market “Tricks” • There are several "tricks" that experienced investors use to make a profit. • Like the rest of the stock market, these tricks are very risky, and you should know what you are doing if you use these tricks. • The tricks include selling short, buying on margin, and buying warrants.

15. Selling Short, or “Short Selling” • Basically, short selling is selling a stock before you actually buy it. • First borrow stocks from a broker. • Then, you sell them immediately on the market. • You keep the money that you earned from selling the stocks, and wait, hoping that the price for the stock will drop. • If the price for the stock does drop, then you can buy back the stock, and give them back to your broker. • You will have made a profit, since you sold them for more than you bought them for.

16. Selling Short - Example • For example, if you borrow 100 stocks at 4 dollars per stock, and sell them in the market, you have 400 dollars. • If you wait a while, and the price of the stock decreases to 2 dollars per stock, you can buy 100 stocks for 200 dollars. • You then return the 100 stocks to the broker, pay a little bit of interest, and keep the other 200 dollars. • Unfortunately, selling short does not always end as well as that.

17. Buying on Margin • Buying on margin is another trick which is basically buying stocks on borrowed money. • You must first set up a margin account, which has a minimum balance of 2000 dollars. • Once you have a margin account, you can borrow up to 50 percent of the cost of buying the stocks you want. • By borrowing 50 percent of the cost, you are controlling something twice as valuable as what you paid for. • This will enable you to gain more profits with less money.

18. Buying on Margin - Example • For example, if you put in $500, and the broker lends you $500, then you have $1,000 to work with. • You then buy 100 stocks at $10 a stock. • If the price for the stock increases to $15, and you sell, then you have $1,500. • You then pay back the broker the $500 plus interest, and you have made roughly $1,000, doubling your initial investment of $500.

19. Warrants • Buying warrants is a less risky trick. • A warrant is sold by a company that is planning on issuing stocks soon. • The warrant gives you the right to buy stocks at a certain price. • For example, if you buy a warrant to buy a stock at $5 for $1, and the stock ends up being issued at $10 a share, • then you can sell the shares for a profit of $4 per share, since you paid only $6 total, and sold them at $10