Why Buy Stocks?
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Transcript of Why Buy Stocks?
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