Investing in Stocks

Common Stock Advantages▪ Voting Rights – Proxy▪ Usually cheaper than preferred

Disadvantages▪ More risky – last to get money▪ Not guaranteed a dividend

Preferred Stock Advantages▪ First to get money if company goes under▪ Guaranteed a dividend first

Disadvantages▪ No voting rights▪ More expensive than common

Terms Stock Certificate Par Value – stated on certificate Market Value – what you pay Undervalued stocks vs Overvalued Return – how much money you make from an

investment Factors that affect price

The company Interest rates – lower the better for stocks The market

Bull and Bear Markets Bull Market▪ Rising stock prices▪ Feeling of investor optimism

Bear Market▪ Period of falling stock prices – 15% or more▪ Investors are pessimistic about overall economy.

Securities Exchanges NYSE – largest, 1.1 million publicly owned shares = $9

million in capital American Stock Exchange – smaller, 250,000 shares =

$2.5 million in capital NASDAQ – medium size, mostly tech. companies

Over-the-Counter Market Network of brokers who buy and sell securities

not listed on exchanges Trades down by phone or internet

Short-Term Techniques “Playing the market.” Buying on Margin▪ Borrowing from your broker▪ Leverage – use less of your own money & buy more

stocks with less money.

Selling Short▪ Selling stocks borrowed from a broker that must be

replaced at a later time.

Long-Term Techniques Buy and Hold Dollar-Cost Averaging▪ Purchase of an equal dollar amount of the

same stock at regular intervals.▪ Helps to avoid the situation of buying high

and selling low.

Columns 52 Wk High and Low Stock name abbrev. & “pf” or “s” Div – Dividend stated as dollar per share Yld – Yield stated as a % --annual

dividend/closing price P/E ratio – price/earnings ratio Sales in 100’s Highest, lowest, and closing price Net change