Beginning to Invest in Stocks

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Information about Beginning to Invest in Stocks
Finance

Published on March 5, 2009

Author: fpcksc

Source: slideshare.net

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Beginning to Invest in Stocks

Why stocks? Highest history of returns, 11% over the long-term Offer two different ways to make money Great for young investors

Highest history of returns, 11% over the long-term

Offer two different ways to make money

Great for young investors

Two Different Ways to Make Money Capital Gains: When you sell a stock for more than your purchasing price Dividends: A certain amount of money paid to investors per stock Not every company gives out dividends and you’re never guaranteed to sell a stock for higher than you bought it

Capital Gains: When you sell a stock for more than your purchasing price

Dividends: A certain amount of money paid to investors per stock

Not every company gives out dividends and you’re never guaranteed to sell a stock for higher than you bought it

Types of Stock Growth Stocks Blue-Chip Stocks Income Stocks Cyclical Stocks Defensive Stocks Value Stocks Speculative Stocks

Growth Stocks

Blue-Chip Stocks

Income Stocks

Cyclical Stocks

Defensive Stocks

Value Stocks

Speculative Stocks

Growth Stocks Has good prospects of growing faster than the economy or stock market in general Small to nonexistent dividends Sought out for expected growth and long-term capital gains

Has good prospects of growing faster than the economy or stock market in general

Small to nonexistent dividends

Sought out for expected growth and long-term capital gains

Blue-chip Stocks Includes some growth stocks Some long-term growth with little risk “Decent” dividend income Safe and reliable

Includes some growth stocks

Some long-term growth with little risk

“Decent” dividend income

Safe and reliable

Income Stocks Pay high dividends Dividends can change by year but rarely go away entirely Chance for some growth

Pay high dividends

Dividends can change by year but rarely go away entirely

Chance for some growth

Cyclical Stocks Industry stocks that follow the action of the economy Growth when the economy is doing well, loss when in recessions Airlines, steel, chemicals, home building, etc.

Industry stocks that follow the action of the economy

Growth when the economy is doing well, loss when in recessions

Airlines, steel, chemicals, home building, etc.

Defensive Stocks Industry stocks that no matter what, people will buy Food, beverages, utilities, drugs, etc.

Industry stocks that no matter what, people will buy

Food, beverages, utilities, drugs, etc.

Value Stocks Stocks of a strong company that have gone down in price Not based on future growth Good deal on a solid company Price will eventually go up again

Stocks of a strong company that have gone down in price

Not based on future growth

Good deal on a solid company

Price will eventually go up again

Speculative Stocks Extremely high risk Typically from new companies Chance of high returns

Extremely high risk

Typically from new companies

Chance of high returns

What kind of stock is for me? Depends on your age, comfort with risk, future goals, etc.

Depends on your age, comfort with risk, future goals, etc.

23-Year-Old Female Investor Has time to wait on stocks Comfortable with risk Hopes to buy a house in the future, but not any time soon Dividend income is not necessary Capital gains are better

Has time to wait on stocks

Comfortable with risk

Hopes to buy a house in the future, but not any time soon

Dividend income is not necessary

Capital gains are better

23-Year-Old Female Investor Growth Stocks Cyclical Stocks (buy cheap while the economy is bad) Maybe Value Stocks

Growth Stocks

Cyclical Stocks (buy cheap while the economy is bad)

Maybe Value Stocks

What type of investor is she? Buying and Holding Willing to hold onto stocks for 5 to 10 years Take advantage of a slow market to buy more stocks Know it will eventually come back

Buying and Holding

Willing to hold onto stocks for 5 to 10 years

Take advantage of a slow market to buy more stocks

Know it will eventually come back

Where can I see stock information? Kiplinger Bloomberg Yahoo! Finance Hoover’s Online

Kiplinger

Bloomberg

Yahoo! Finance

Hoover’s Online

What am I looking for? Price-Earnings Ratio: Market price divided by its earnings Compare to industry average Try to buy a P/E below average and hope others catch on

Price-Earnings Ratio: Market price divided by its earnings

Compare to industry average

Try to buy a P/E below average and hope others catch on

What else am I looking for? Dividend Yield: Dividends per share divided by market price for the stock If you want a high dividend income, a higher yield is better

Dividend Yield: Dividends per share divided by market price for the stock

If you want a high dividend income, a higher yield is better

Anything else? Return on Equity: How much money is earned on the stockholders’ equity Return on Assets: How much money is earned on the assets of the company Debt-Equity Ratio: Stockholders’ equity divided by debts Always compare against the industry average

Return on Equity: How much money is earned on the stockholders’ equity

Return on Assets: How much money is earned on the assets of the company

Debt-Equity Ratio: Stockholders’ equity divided by debts

Always compare against the industry average

What is Volatility? How a stock acts relative to the rest of the stock market Beta: The measurement of volatility Beta of 1 moves in direct correlation with the stock market Negative Beta moves inversely

How a stock acts relative to the rest of the stock market

Beta: The measurement of volatility

Beta of 1 moves in direct correlation with the stock market

Negative Beta moves inversely

Okay, so where do I go? Depends on how involved you want to be Full-Service Broker Discount or Online Broker

Depends on how involved you want to be

Full-Service Broker

Discount or Online Broker

Full-Service Broker Pay someone else to make the decisions Could pay commission on sales/purchases Wrap accounts

Pay someone else to make the decisions

Could pay commission on sales/purchases

Wrap accounts

Discount or Online Broker Do it yourself Discount employees get salaries, not commissions Online allow you to sell and buy stocks completely on your own Lowest commission around Trade 24 hours a day

Do it yourself

Discount employees get salaries, not commissions

Online allow you to sell and buy stocks completely on your own

Lowest commission around

Trade 24 hours a day

Citations Kiplinger.com. (July 2007). Check Key Numbers . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2c.html Kiplinger.com. (July 2007). Establish Your Game Plan . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2d.html Kiplinger.com. (July 2007). Getting Started. Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock1.html Kiplinger.com. (July 2007). Keep an Eye on Earnings . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2b.html Kiplinger.com. (July 2007). Recruit the Right Broker. Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock4.html Orman, Suze. (2008). The Road to Wealth . (p. 378 – 400). New York: Riverhead Books Yahoo!Finance. (2008). What is a Stock, Anyway? Retrieved June 22, 2008 from http://finance.yahoo.com/education/stocks/article/101027/What_is_a _Stock,_Anyway

Kiplinger.com. (July 2007). Check Key Numbers . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2c.html

Kiplinger.com. (July 2007). Establish Your Game Plan . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2d.html

Kiplinger.com. (July 2007). Getting Started. Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock1.html

Kiplinger.com. (July 2007). Keep an Eye on Earnings . Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock2b.html

Kiplinger.com. (July 2007). Recruit the Right Broker. Retrieved June 22, 2008 from http://kiplinger.com/basics/archives/2003/03/stock4.html

Orman, Suze. (2008). The Road to Wealth . (p. 378 – 400). New York: Riverhead Books

Yahoo!Finance. (2008). What is a Stock, Anyway? Retrieved June 22, 2008 from http://finance.yahoo.com/education/stocks/article/101027/What_is_a _Stock,_Anyway

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