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The stock marketThe stock marketWeek 7

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Today is the second day (or the first if youwere not here last Wednesday) for you tocheck how the three stocks you choose aredoing. Next week, on Wednesday, you willhave to hand in your table and graphs,showing the value of your shares and yourtotal gain/loss (3 graphs in total, one pereach share)

Few simple tips.Spread the risk by buying shares fromdifferent industriesFollow the market leaders. ie. If investmentsharesExamine trends and performances of thestocks

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More information on ordinaryMore information on ordinaryshares ...shares ...

Blue chip shares : they provide gooddividend and steady growth. They are themost popular. ex. Westpac Banking Corp.Income Shares : they provide income in theform of dividend. They have high Payoutratios (Div.Yield) Ex. Westfield group.Growth shares : these companies pay lowdividends and high rates of reinvestment intogrowing their business (opposite of incomes.) Ex. Fisher & Paykel

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Cyclical shares : they follow the business

cycle. Ex General MotorsDefensive shares : they are immune tochanges, they often have low PE ratios(opposite of cyclical s.) Ex. Woolworth

Speculative shares: they are usually of small companies, often newly formed.They are high risk inv., due to lack of financial strenght.Value shares : they look cheap, havinglow PE ratios and high dividend yield.(they could be defensive or incomeshares)

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Last, but not least...Last, but not least...

Quality sharesThey can be found in any of the above

categories. They have the followingcharacteristics: Great management, solidbusiness and finances, track record of growth in profits and dividends.

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More share performanceMore share performanceindicators...indicators...TSR TSR

The TSR chart uses share price anddividends to calculate the TSR (totalshareholder return) profile and presents itin an easy-to-use chart. The TSR is theincrease in value per share, plus dividendsper share paid over the selected periodexpressed in percentage terms.

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Net Tangible Assets per

ShareBook Value per Share

Price/NTAShare price /Net Tangible

assets

It relates the stockholder's equityComparing the market value tothe book value can indicatewhether or not the stock inovervalued or undervalued.

During bull markets the stockprice is more likely to tradesignificantly higher than bookvalue, and in a bear market thetwo value's may be close toequal.

Price/ BVShare price /Assets (tangible and

intangible such asgoodwill, patents,...)

http://www.investopedia.com/terms/s/stockholdersequity.asphttp://www.investopedia.com/terms/s/stockholdersequity.asp

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All this...in practice!All this...in practice!

Have a look at the Top 150 companies handout, from the SMH of the 14/05/2010.Pick a companyAnalyse its performance data writing in yournotebook every percentage/ratio and itssignificanceCompare the performance of this company withthose of any other two companies on the sametable.What are the major differences between theirratios and percentages?What does it tell you about the companies?

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HomeworkHomework

Study paragraphs 5.2.1, 5.2.2

Answer questions 5.4, 5.5, 5.8, page 142

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More on shares

Bonus shares : opportunity forshareholders to share the capital growthof the company.

Rights : for the company to raise capital

by offering extra shares to existingshareholders

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Options :Call option: it gives the right to buy at a certain

price and timePut option: it gives the investor the right to sell ata certain price and timeDebentures : they are loans to companies. Theyhave fixed rate and are low risk investments

Bonds: fixed interest securities issued by thefederal or state government. There are alsosemi-government bonds for companies such asTelstra

What advantages do debentures and bonds have?Any disadvantages?