Investing in Stocks
Public Corporations A public Corporation is a corporation whose stock is traded openly on stock markets A closely held corporation is a corporation whose stock is held or owned by a small number of stockholders and not available to the public at large
United States Stock Markets There are three large stock markets in the United States: The New York Stock Exchange (NYSE) The American Stock Exchange (AMEX) ( The Curb ) The NASDAQ The National Association of Securities Dealers Automated Quotation System
The New York Stock Exchange The NYSE is the largest exchange in the U.S., floorbased Started in 1792 To buy and sell in the NYSE one must be a member Limited to 1366 members
The American Stock Exchange AMEX, floor-based Much smaller than the NYSE Also known as The Curb because it was originally held outside on the street curb. Started about 1840
NASDAQ National Association of Securities Dealers Automated Quotation System The exchange is not in one location but rather a system of connected computers All trades are done online Established 1971
Over the Counter Market OTC Over the Counter Market is a system for selling stocks that are not listed on the major exchanges
Bull Market and Bear Market A bull market is a prolonged period of rising stock prices and a general feeling of investor optimism A bear market is a prolonged period of falling stock prices and a general feeling of investor pessimism
Investing Strategies--Short-Term Techniques Day Trading Buying stock for a day or two and then selling it in the hopes of making a quick profit Buying on Margin Borrowing money from your stock broker to buy more stock. You use less of your own money, hoping to increase your return on equity. Called leveraging.
Investing Strategies Short-Term Techniques Buy on Margin (cont.) If stock goes up in price, you make a larger return on your initial investment If the stock price goes down, you will be forced to sell the stock to pay the interest on the margin account and pay any additional amount owing.
Investing Strategies Short-Term Techniques Sell Short Betting against the Market You borrow stock from a stock broker that must be replaced at a later time. If the stock goes down in price, it will cost you less to replace it and you will profit
Investing Strategies Short-Term Techniques If the stock price goes up, it will cost you more to replace it and you will lose money. Short-term strategies are dangerous. High risk, but possibility of high profits or great losses
Investing Strategies Long-Term Techniques Buy and Hold Stock Market goes up and down. By investing longterm, one increases likelihood of overall profits
Stockholders Stockholders or shareholders own a portion of the company They can make money through their stock ownership in two ways: Payment of dividends (a sharing of the company s profits with the stockholders) Through capital gains (the increase of the value of the stock that they own).
Dow Jones Industrial Average Also known as the Dow Started in 1896 Originally included stocks of 11 companies Now averages 30 companies General Electric the only one of current Dow that was on original list
Dow Jones Industrial Average Started by Charles Henry Dow and Edward Jones An effort to give some kind of measure as to how the stock market was doing overall
Other Indexes S&P 500 (Standard & Poors) NASDAQ Composite
Other Indexes Around the World Nikkei 225 (Japan) Shanghai Composite (China) Deutscher Aktienindex (Germany) Hang Seng (Hong Kong) Moscow Times (Russia)
Initial Public Offering (IPO) Initial Public Offering (IPO) is a company s first offering of stock to the public The IPO is handled by an investment bank which acts as an intermediary between a company that offers to sell the stock and the public that wishes to buy the stock
Buying the Market Buying all the stocks in a particular index Spyders Standard & Poors Depository Receipts (SPDRs), represent ownership in all 500 stocks in the S&P 500