Understanding the Stock Market

Transcription

1 Understanding the Stock Market

2 Today s Agenda Today we ll discuss What stocks are and how they work Market cycles Information sources for stock investing

3 What Are Stocks and How Do They Work? Stocks represent part ownership of companies Stock categories

4 Stock Basics Common stock Preferred stock Stock splits

5 Capital Gains and Dividends Capital gains: short or long term Dividends Tax considerations

6 Stock Exchanges NYSE Amex Nasdaq Regional exchanges Foreign exchanges

7 The Mechanics of a Trade Stock transactions are initially handled by a stockbroker. Other people involved in market trades include dealers, investment bankers, and traders.

8 Executing the Trade Floor brokers do the actual buying and selling of stocks on the exchange floor. Stock specialists supply floor brokers with stocks via bid/ask trades.

9 Stockbrokers Stockbrokers vary in quality and the types of services offered. There are two types of stockbrokers: full-service and discount. Investors should consider what brokerage services they really need. Savvy investors may not need all the services a full-service broker provides.

10 Commissions Rates vary widely among brokers. Fees have been dropping in recent years. Some investors prefer to pay a fixed fee annually or for each trade.

11 Regulating Stock Market Activity The stock market is regulated by the Securities and Exchange Commission. The SEC enforces laws with fines, sanctions, and prosecution. FINRA oversees the Nasdaq.

12 Market Cycles Ups and downs are to be expected Bulls, Bears, and Corrections Markets are affected by many economic, social, and political factors

13 Market Drops View fluctuations in terms of percentage changes to keep them in perspective. On October 15, 2008, the market experienced a bigger point drop than on Black Monday in October of 1987, yet it actually lost a much smaller percentage of its value.

14 Importance of a Long-Term Perspective Long-term market trend has been upward. Investment decisions should be based on your personal circumstances, not short-term market changes.

15 Consider Stocks and Other Investments Bonds generally have less severe price fluctuations than stocks. Money markets are the most stable of investments.

16 The Long-Term Potential of Stocks Growth of a $1 Investment Made in 1926 Sources: Wealth Management Systems Inc.; the Federal Reserve. Stocks are represented by the S&P 500, an unmanaged index generally considered representative of the U.S. stock market. Results include reinvestment of dividends. Bonds are represented by a composite of the returns of long-term Treasuries (maturities of 10+ years), the Barclays Long-Term Government Bond index, and the Barclays U.S. Aggregate index. Cash is represented by a composite of yields on 3-month Treasury bills and the Barclays 3-Month Treasury Bellwether index. Inflation is represented by the changes in the Consumer Price Index. Performance covers the period from January 1, 1926, through December 31, The performance of an index is not indicative of the performance of a particular investment and does not take into account the potential decline in purchasing power due to inflation or the fees and expenses associated with investing. Past performance is not a guarantee of future results. It is not possible to invest directly in any index. (CS000165)

17 Limit Up-Limit Down (LULD) A new system to address extraordinary volatility in the stock market. Replaces the existing single-stock circuit breakers in most cases. Limit Up-Limit Down (LULD) is intended to prevent stock trades from occurring outside of specified price bands. Source: NASDAQ OMX, Frequently Asked Questions, Limit Up-Limit Down..

18 Information Sources Indexes Published sources Annual reports How to read the stock tables

19 Indexes Dow Jones Industrial Average S&P 500 Nasdaq Composite Russell 2000 Wilshire 5000

20 Published Sources The Wall Street Journal Standard & Poor s Value Line

21 Annual Reports Publication of an annual report is required by the SEC. Annual reports provide key information to help you research companies.

22 How to Read the Stock Tables Printed in most newspapers Company name Symbol 52-week high and low Dividend Percent yield

23 Are You Ready to Invest in the Stock Market?