Investing in StockInvesting in StockMrs. Wilson: Career & Financial Management

Characteristics of StockCharacteristics of Stock

• Nearly 50 million people in the US own stock

• More than 34,000 public corporations from which to choose

• A public corporation is a company whose stock is traded openly on the stock market

Stocks 101—What is Stock?Stocks 101—What is Stock?• A stock is a partial ownership in a corporation

• When you purchase shares of a stock, you purchase ownership in that corporation, with rights to share in its profits

• When a corporation needs to raise money for expansion or improvements, they will sell shares on the open markets

• The markets are the New York Stock Exchange (NYSE), the NASDAQ, and the American Stock Exchange (AMEX). There are several other markets as well

Why Invest in the Stock Market? Why Invest in the Stock Market?

• Invest in the stock market to stay ahead of inflation and use the best way (verified by historical statistics), to increase your finances over time

• Research will show lower inflation brings higher returns to stocks and bonds

• For about the past thirty years the average return on stocks has been 8%

• Compare this to a passbook account at 3%, even with just 2% inflation, after paying 1% in taxes you will have (0) zero return

StockholdersStockholders

• Also known as shareholders

• Are the owners of the corporation

• If the corporation does well, the stockholders will profit in two ways

Ways shareholders profit…Ways shareholders profit…

• Dividends– The part of the corporation’s profits paid to

stockholders

• Capital gain– This is an increase in the value of the stock above

the price initially paid for it– For example, if you bought stock for $5 a share and it

goes to $10 per share, you could sell it for a profit

Capital LossCapital Loss

• Part of the risk of owning stock, however, is that the price could also go down below the price initially paid for it

• This is known as a capital loss

Trading StocksTrading Stocks

• Stocks are traded in round lots or odd lots• Round lot

– Is 100 shares or multiples of 100 shares of a particular stock

• Odd lot– Is fewer than 100 shares of a particular stock

• Brokerage firms charge slightly higher per-share fees for trading in odd lots. They MUST BE combined with round lots before they can be traded.

Common StockCommon Stock

• The type of stock that pays a variable dividend and gives the holder voting rights

• The board of directors, elected by the stockholders to guide the corporation, decides the amount of the dividend each year

• They may vote but not manage; the more shares, the more power

Preferred StockPreferred Stock

• Is a type of stock that pays a fixed dividend and carries no voting rights

• Preferred stockholders earn the stated dividend, regardless of how the company is doing

• Preferred stock is less risky than common stock

AssignmentAssignment

• Make a list of 10 stocks that you may be interested in purchasing

• Submit this list, typed, before the end of class