ࡱ> _a^/ Y-bjbjEE 7`/d/dY%jj,$*#$$$$$$$&`)d%$%$:$.##V"@K#+c:" #P$0$"x))K#)K#%$%$$)j u: The Stock Market What are stocks? Ownership of a company, share of profits, voting rights, annual report (Show Examples) Exception: Preferred Stock receive a guaranteed dividend with no voting rights. Advantages of owning stockDisadvantages of owning stockOwnership of something Transferable Growth Potential Dividends Limited Liability Double Taxation Requires time to research Impersonal No guarantee to profit (Risk) Last to paid with Bankruptcy (Suppliers, Bondholders, Preferred and Common)  In what ways is the stock market valuable to corporations? Companies raise the money required to finance their formation, operation, and expansion, and spread the risks associated with those purchases. Raise money on issuance of new stock, not day to day Initial Public Offering (i.e. Alibaba went public soaring 38% to close at $93.89) If company demand outstrips the ability of banks and venture capitalists to fund the company. Company might decide to go public Company goes to investment bankers to negotiate an agreement to underwrite a stock offering known as IPO. The investment bankers buy all the shares that will be offered to the public at a set price (primary market). The investment bankers then sell the stock to the general public (secondary market) in the hopes of making a profit. Why do companies care about stock prices? Duty to do well for stockholders, legitimacy for future capital In what ways is the stock market valuable to investors? Investors bear some of the risks involved in corporate affairs in exchange for returns that are higher than what the investor would receive in other investments. Dividends Dividend Aristocrats Companies that have paid and raised dividends without fail for at least 20-25 years. A company is showing confidence in growth by increasing dividends. (i.e. Value oriented Blue Chips) Capital gains when stock prices increase Drips Direct reinvestment plans St. Petersburg Paradox How much would you pay to play? How are stocks bought and sold? Stock Exchanges What are the stock exchanges? NYSE, NASDAQ International Stock Exchanges list What is the Dow Jones Industrial Average? Dow is used as a sort of proxy for the overall health of the market and tracks the performance of 30 Blue Chips US stocks. Though called an average is more of an index. Quoted in points: computed by totaling the weighted prices of the 30 stocks and dividing by a number regularly adjusted for a variety of changes. An indicator to highlight the performance of the entire stock market and also used to note where the economy is heading (leading indicator). Show visual of list and talk about reshuffled Dow Other Indexes:  HYPERLINK "http://www.investing.com/indices/major-indices" http://www.investing.com/indices/major-indices Market Prophit, a data analytics firm that tracks social media chatter about the stock market, has created an exchanged traded fund based on its Social Media Sentiment Index. The company tracks the 25 most tweeted about stocks and notes whether people are tweeting good or bad things about the company. In June, it was up YTD 65%. Apple, Amazon, Microsoft, GoPro, Tesla, Baidu, Twitter, etc. How can stock prices go up even when companies are not making money, or when companies are just starting out? Expected Growth/Return Supply and Demand of stock market Individual Sectors Bull versus Bear market (Beta Systematic Risk) Stock Split visual What are basic categories of stocks? Market Capitalization total $ market value of all of a companys outstanding shares the larger the cap size, the more established the company, and the more stable the price of its stock. Small cap and mid cap usually have a higher potential for future growth than large cap companies, but their stock tends to fluctuate more in price. There are also Mega (S&P 100) and Micro cap, but they might be too big (breakup, bankruptcy) or too small (mergers). Large cap: more than 10 billion Mid cap: 1 to 10 billion Small cap (Russell 2000): less than 1 billion Small cap, high quality stocks has outperformed the overall market by nearly 5 percentage points a year. Penny stocks a few million dollars in net tangible assets and have a short operating history. Many penny stocks are virtually worthless and should be considered extremely high risk investments. Sector stocks strategy to diversify (Would you rather have a new BMW or two more years of life? Utilities and Consumer Staples defensive stocks Transportation, Technology, Health Care, Financial, Energy, Consumer Cyclical, Basic materials, Capital Goods, Communication services (cyclical in nature) Income versus Growth Income large dividends, but stock price does not fluctuate (Utility Companies) Growth Little or no dividend, high risk, long term potential for profit (Google) Aggressive versus Conservative Aggressive stocks that are seeing sequential revenue growth over the last three quarters (Treehouse Foods) Conservative lowest monthly price volatility over the last five years (PepsiCo) Blue Chip reliable and stable company and stock price, small regular dividends, and well established company (General Electric) Cyclical companies whose profits move up and down according to the business cycle. (Auto, Housing industry, Heavy Equipment, Steel) Defensive companies whose products and services enjoy a steady demand, recession proof. (Basic food, Drink, Insurance, Drugs) Finding stocks that hold up during market declines FANGS ( Facebook, Amazon, Netflixs, Google What is a mutual fund? Pulls money together from different investors and invests in different investments Show annual report for American Funds How important have mutual funds been in recent years in the rise of the market? Diversification done for you, make sure to have a good fund manager Glidepath the funds automatically reset their asset mix to become more conservative as an investor nears retirement or student nears college a gradual shift known as the glidepath. (target-date funds) Defined Benefit ( Defined Contribution What are pension funds? Employer run retirement funds Defined Contribution with Employer matching 401K, 403B (tax exempt organizations) Why do workers put money in pension funds? Social security not a guarantee 401K was initially supposed to a supplementary program, but now employers have shifting burden onto employees. Reforms in 2006 led to automatic enrollment, but required savings rate is not enough Defined Ambition plan employers provide a pension for employees but one that puts specific limits on how much the employee will receive in total IRA 22 year old versus 32 year old Traditional you receive a tax break in the tax year in which you make a contribution, and you pay no taxes on the dividends, interest, and capital gains that accumulate. You only pay taxes once you start to take distributions in retirement. Roth you get no tax break in the year of the contribution, but you are able to remove the funds tax free in retirement. What tax bracket am I in today? and What tax bracket do I expect to be in later? What are the differences between traditional stock brokers and discount stock brokers? Traditional Large fees and great amount of advice Discount Low fees and no guidance Show Dear Broker visual How does the nations economy help drive the stock market? Productivity, low unemployment, stable prices Rule of 20, Ned Davis Research Do people have money to spend or expected money to spend? Consumer Confidence Volatility Index (VIX), Google Trends External Factors on Stock Market visuals Do experts expect the stock market will always be a good investment, at least over the long run? Why or why not? Cartoon and Stock are picking up speed visual Stocks cyclical in short term ( Long Term growth Tobins Q Ratio, Halloween Indicator Do you think the stock market is a good investment? Explain your answer. Investment - is a monetary asset purchased with the IDEA that the asset will provide income in the future or appreciate and be sold at a higher price. Risk versus Return Advantages of owning stockDisadvantages of owning stockOwnership of something Transferable Growth Potential Dividends Limited Liability Double Taxation Requires time to research Impersonal No guarantee to profit (Risk) Last to paid with Bankruptcy (Suppliers, Bondholders, Preferred and Common)  The Stock Market What are stocks? Advantages of owning stockDisadvantages of owning stock   In what ways is the stock market valuable to corporations? Why do companies care about stock prices? In what ways is the stock market valuable to investors? How are stocks bought and sold? What are the stock exchanges? What is the Dow Jones Industrial Average? How can stock prices go up even when companies are not making money, or when companies are just starting out? What are basic categories of stocks? What is a mutual fund? How important have mutual funds been in recent years in the rise of the market? What are pension funds? Why do workers put money in pension funds? What are the differences between traditional stock brokers and discount stock brokers? How does the nations economy help drive the stock market? Do experts expect the stock market will always be a good investment, at least over the long run? Why or why not? Do you think the stock market is a good investment? 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