WHY BUY STOCKS?

What does it mean to own stock in a company?

•It means YOU are an OWNER of that company!

You get to vote on company decisions like the members of the board of directors!

I work for

you!

Larry Ellison, CEO, Oracle Corp.

You take the risk, you need to be rewarded for that risk!How do shareholders get rewarded for owning stock?

Two Ways---1. Rise in Share Price (this one everybody

knows)

2. Dividends (don’t forget these!)

What are dividends?When companies have earnings they often pay a portion of them back to their shareholders

These payments are called dividends

Also, don’t take your dividends in cash, but “reinvest” them in stock!!

ETF’sStands for “Exchange-Traded Fund”

A golden ETF “GLD”

Diversify with Mutual Funds and ETF’sEliminates the risk of holding too few assets

Eliminates the risk of picking stocks.

You get to “buy the whole market” with one trade.

You can even diversify across regions and assets

Lesson 3: Understand the psychology of investing

Most investors sell when the market is LOW and buy when the market is HIGH. WHY?

We are greedy andPanic!

We stink at investing!Avg. stock market return is 11.9% while the average stock investor only got 4.5%.

How do you avoid buying at the Top?

And Selling at the Bottom?

“ Be greedy when others are fearful. Be fearful when

others are greedy.” Warren Buffet

Listen to Warren Buffet!!

•Be a Buy and Hold investor.•When the market goes down …BUY•When the market goes up…HOLD•Only sell your investments when you think you are going to need the money and then, only IF the market is higher.

Questions in review

How do owner of stock profit?Increase in share priceReceive dividends

What is a dividend?Payout of a portion of earnings to

shareholders

How can investors easily “diversify” their stock holdings?

Buy mutual funds and ETF’s