UNDERSTANDING THE JARGON

Transcription

1 UNDERSTANDING THE JARGON Ken Kavula President Mid-Michigan Chapter Ann Cuneaz Education Program Manager BetterInvesting 1

2 Disclaimer: All stock references are meant to be used for educational purposes. No recommendation for purchase or sale is intended or implied. This presentation is being recorded for future use! 2 2

3 STOCK MARKET DROPS 6%! THE DOW REACHES NEW HIGH! SELL OFF IN MARKET CONTINUES! PONZI SCHEME SINKS INVESTORS! 3 3

4 COMMON MISCONCEPTIONS ABOUT THE STOCK MARKET The stock market is a dart game. I work too hard for my money to gamble it away. Only professionals can make money in the stock market. Investing in stocks is too difficult for individual investors. 4 4

5 TODAY WE LL LEARN 1. How the Stock Market provides a mechanism to share in company profits. 2. The basic vocabulary needed to study stocks. 3. Why price depends on perception as well as supply and demand. 4. How the BetterInvesting method provides a structure to evaluate and select stocks for maximum return. 5 5

6 WHAT A GREAT IDEA! 6 6

7 HOW DO WE GET STARTED? What is needed: A factory? Maybe an office? Manufacturing Equipment? Parts? People? How do we get the money to get started? 7 7

8 RAISING FUNDS Investors provide funding In return, investors receive a share of the company A new company is formed! Why would anyone invest? Profit Prestige Power 8 8

9 WHAT HAPPENS NEXT? The Company GROWS!!!! Additional funds are needed to continue expansion Shares of the Company are sold to the public IPO initial public offering going public The Company may borrow money The Company continues to GROW! 9 9

10 Ownership Private Co. Smaller group of investors Buying/Selling Directly among investors Public Co. Large numbers of investors Directly or Through a third party Disclosure Not required Government rules apply Rationale for choice Control Fewer government regulations; no need for extra money for expansion; closer control Relatively direct 10 Need to raise money for growth and/or expansion Indirect through election of Directors 10

11 HOW TO SHARE IN COMPANY PROFITS 11 11

12 WHY DO INVESTORS RISK MONEY IN A COMPANY? FOR PROFIT 12 12

13 DEFINING PROFITS Money is collected from the goods and services sold. Sales or Revenues Expenses are subtracted from the sales. What is left are the profits. Net Income, Net Profit, or Earnings These earnings are allocated to each share of stock which are owned by shareholders. Earnings per Share or EPS 13 13

14 A PICTURE OF PROFIT Sales or Revenues Money collected from the goods and/or services sold Expenses Includes taxes Profits Net income Net profit Earnings 14 14

15 MEASURING PROFIT Dividing the company s profits by the number of shares results in: EARNINGS PER SHARE This is the portion of a company s profit allocated to each outstanding share of stock

16 PROFITS ARE IMPORTANT Over the long term. Profitability starts with sales Sales growth drives the growth of earnings Growth of earnings drives the Stock Price higher! Stock prices ultimately follow earnings! 16 16

17 AND PEOPLE INVEST To make MONEY! 17 17

18 THE STOCK MARKET A Giant Supermarket for buying and selling Stock 18 18

19 WHAT IS WALL STREET? NYSE: New York Stock Exchange NASDAQ: National Association of Securities Dealers Automated Quotation (System) OTC: Over the counter exchanges for smaller companies 19 19

20 INDEXES: MEASURING THE MARKET Dow Jones Industrial Average 30 stocks of all types of businesses S&P 500 Index 500 stocks from the NYSE & NASDAQ NASDAQ Composite Index Heavily weighted with technology stocks Russell 2000 Represents smaller companies BIXX 100 Represents the top 100 holdings of BetterInvesting Investment Clubs 20 20

21 READING STOCK QUOTES 21 21

22 TICKER SYMBOLS An abbreviation to uniquely identify publicly traded companies ABT T AAPL COH GE HOG BNNY TAP Abbott Labs AT&T Apple Coach General Electric Harley-Davidson Annie s Inc. Molson Coors Brewing 22 22

23 COMPANY INFORMATION 23 SOURCE: YAHOO! FINANCE 23

24 PRICE OR QUOTE The in the price column represents the price (in dollars) paid for this stock the last time it traded. It will change during the trading day

25 CLOSE OR CLOSING PRICE When the market is closed, this number represents the final price from the last trading session

26 CHANGE OR PRICE CHANGE The green color and the.18 shows that this stock s price increased $.18 from the previous day s closing price. The column next to it represents the gain (or loss) as a percentage of the price at the close of the previous trading day

27 52-WK RANGE These numbers represent the highest and lowest prices for the stock in the preceding 52-week period

28 EPS OR EARNINGS PER SHARE The 6.07 represents the Earnings per Share (EPS) for the last, or trailing, twelve month period (TTM). This number will not necessarily be the last fiscal year s EPS

29 DIV/SHR OR DIVIDEND PER SHARE The 1.40 represents the dividend per share paid by this company. It is a dollar figure and is similar to interest on savings that you might receive from a bank. A dash or the symbol N/A (not applicable) would indicate the company does not pay a dividend

30 P/E OR PRICE TO EARNINGS RATIO The P/E is a ratio (fraction) that is used to compare stocks. P/E is the current stock price divided by four quarters of earnings. The P/E values on the chart are calculated by using the most recent four quarters or trailing twelve months (TTM) earnings

31 P/E OR PRICE/EARNINGS RATIO Price/Earnings (P/E) ratios can be thought of as how much an investor is willing to pay for $1.00 of a company s earnings. The higher the P/E value, the more the investor is willing to pay. Faster growing, higher quality companies usually carry higher P/E values

32 Let s practice these terms! 32 32

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34 STOCK PRICE DEPENDS ON MORE THAN THE FUNDAMENTALS 34 34

35 THE STOCK MARKET IS AN AUCTION! What happens when: There are lots of bidders There are many sets of identical merchandise There are few people There s only a few sets of desirable things 35 35

36 DAY TO DAY, THE STOCK MARKET IS NOTEFFICIENT Emotion can create opportunity! 36 36

37 WHAT MIGHT CAUSE A SUDDEN SPIKE OR DIP IN THE PRICE OF A STOCK? Earnings Release Death of CEO New Product Release Rumor Problem in industry Competitor s good news Nothing at all 37 37

38 NEXT STEPS 38 38

39 WHERE DO WE GO FROM HERE? We know some basic terms, some investing jargon. We understand a little about market psychology. Is there an investing methodology which allows us to invest for the long-term? Are there tools which will help us make investment decisions? 39 39

40 BetterInvesting believes that you should INVEST REGULARLY 40 40

41 BetterInvesting believes that you should REINVEST ALL EARNINGS 41 41

42 BetterInvesting believes that you should BUY HIGH-QUALITY GROWTH STOCKS AT FAIR PRICES 42 42

43 BetterInvesting believes that you should DIVERSIFY 43 43

44 The BetterInvesting Stock Selection Guide (SSG) Organizes all of the jargon to determine answers to two key questions: 1. Is the stock a quality growth stock? 2. Is it selling at a fair and reasonable price? 44 44

45 The SSG is: A Tool A Guide to Your Judgment The SSG is not: A Black Box A Substitute for Study and Judgment 45 45

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47 Tools.BetterInvesting.org/StockAnalysis 47 47

48 List of available companies changes regularly 48 48

49 LET S RECAP 1. People buy stocks to make money. 2. The Stock Market provides a mechanism to share in company profits. 3. There is basic vocabulary you need to know to study stocks. 4. Price depends on perception as well as supply and demand. 5. The BetterInvesting method provides a structure for evaluating and selecting stocks for maximum return

50 Introduction to the Stock Selection Guide (SSG) A Series of Five Classes 1 Selecting the Best Companies 2 Determining a Fair Price 3 Estimating Future Growth 4 Estimating Future P/Es 5 Review and Practice Learn more at

51 Register at Recordings and handouts from Why Invest in Stocks and Understanding the Jargon are found here

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