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Investing in Stocks

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Butter Smile

on 26 November 2014

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Transcript of Investing in Stocks

Thank You!
Numerical Measures That Influence Investment Decisions
Business Summary
McDonald’s Corporation franchises and operates McDonald's restaurants in the United States, Europe, the Asia/Pacific, the Middle East, Africa, Canada, and Latin America. The company’s restaurants offer various food items, soft drinks, coffee, and other beverages, as well as breakfast menus. As of December 31, 2013, it operated 35,429 restaurants, including 28,691 franchised and 6,738 company-operated restaurants. The company was founded in 1940 and is based in Oak Brook, Illinois.
Prospect McDonald's
This restaurant is owned and operated by an independent franchisee.

Buying and Selling Stocks
Long-term and Short-term Investment Strategies
For example,
Common and Preferred Stocks
Evaluating a Stock Issue
Numerical Measures That Influence Investment Decisions
Buying and Selling Stocks
Long-term and Short-term Investment Strategies

Investing in Stocks
Investing in stock offers
larger potential
returns than other investment alternatives, but there is more risk involved.
Investing in stock
You should know the risks and real. You can lose part or all of your money. And yet, research and evaluation techniques can reduce the risks associated with stock investments.
Beginning investors
face two concerns. First, they don’t know where to get the information they need to evaluate potential investments. In reality, more information is available than most investors can read
There are investors who invest in stocks without doing any research at all so they often lose money on their investments.
Simply put, good investors know something about the company before they invest their money in the company’s stock.
Second, they won’t know what the information means when they do find it. To evaluating potential investments, consider the following questions:

1.Is an increase in sales revenues a healthy sign for a corporation ?

2.Should a firm ‘s net income increase or decrease over time ?

3.Should a corporation’s earning per share increase or decrease over time ?

So we want to learn how to evaluate a stock and to make money from your investment decisions.
There are two types of stocks:
common and preferred. Common stockholders are the
actual owners
of the corporation.
But before investing your money, you should understand why corporations issue common stock and why investors purchase that stock.
Common and Preferred Stocks
Common stockholders
are the true owners of the firm. Whereas preferred stock holders can be viewed as creditors.
No maturity date
Right to votes and assets:
In proportion to number of shares held
Limited to amount of investment
Source of return:
Dividend (if paid) and Capital gain (if sold at a higher price)
Neither fixed nor guaranteed.
In the event of bankruptcy, common stockholders will not receive any payment until all the creditors, including the bondholders and preferred stockholders, have been satisfied.

Why investors purchase common stock
A lot of people buy and sell stocks because they want larger returns than those that more conservative investments offer.
The key to success with any investment program is often the opportunity to allow your investments to work for you over a long period of time. That’s why it is so important for people in their twenties and thirties to begin an investment program.
The income from stock is from

Stock value when sell stocks

Possible gain from stock splits
In simple terms, the earning “pie” is the same size but has been sliced up into more pieces.
Preferred stock
is “middle” investments because they represent as investment midway between common stock (ownership position) and corporate bonds (creditor position).
Like common stocks, preferred stocks
Have no fixed maturity date
Failure to pay dividends does not lead to bankruptcy
are not a tax-deductible expense
Like bonds
are fixed in amount

a Stock Issue
Classification of Stocks investments
The internet
How to read the financial section of the newspaper.
1. Name(often abbreviated) of the company : Carnival
2. Stock symbol (letters that identify a stock for trading) : CCL
3. Price paid in the last transaction of the day : $44.50
4. Difference between the price paid for the last share today and the price paid for the last share of previous day: $0.45 (in Wall Street terms, Carnival “closed up$0.45 on this day)

Stock advisory services
Earnings Per Share
1901 Prospect Ave.
Helena MT 59601
Phone: 406-442-5252
Manager: Heather
Send Comments

McDonalds Corp.
One McDonald's Plaza
2111 McDonald's Drive
Suite 720
Oak Brook, Illinois 60523-5500

How to pick a winning stock
1.Learn why the information and numbers are important

2.Develop a plan or a system to help organize the data

3.Use software and finance calculators to find tune your investment selections

Why Corporate earnings are important?
1.Earning per share (EPS)
The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serves as an indicator of a company's profitability.
For example , assume that in 2009 Great Exploration Corperation had after
tax earning of $2,500,000 also assume that Great Exploration had $1,000,000 shares of common stock. This means Great Exploration 's earning per share are 2.5 ,as illustrated below

Earning per share = After-tax income / Number of shares outstanding
= 2,500,000 / 1,000,000
= 2.50

2. P/E ratio
= Measure how much investors are willing to pay for $1 of reported earnings
For example , assume that in 2009 Great Exploration Corporation's common stock is selling for $50 a share. As determined earlier, the corporation's earning per share are $2.50. Great Exploration price-earning ratio is, therefore, $20, as illustrated below
Price-earning ratio = Price per share / Earning per share
= 50.00 / 2.50
= 20

Both earnings per share and the price-earning ratio are based on historical numbers. With this fact in mind, many investors will also look at earnings
estimates for a corporation. Today, it is possible to access investment Web
Sites that provide earnings estimates for major corporation, such as, Yahoo!.

3. PEG ratio
(Price/earning-to-growth) the PEG ratio includes a future projection for earnings per share in the calculation.
For example, Stock A has price-earnings ratio 16 , EPS growth 20%
PEG ratio = Price – earning ratio / Earning per share growth
= 16 / 20%
= 0.8

PEG Ratio > 1 a stock may be overvalued based on its projected growth rate.
PED Ratio < 1 a stock may be undervalued based on its projected growth rate.

Other factors that influence the price of a stock

4. Dividend payout
dividend payout concerned about the firm's future earnings and the dividend payout.
For example, assume you own stock issued by B Corporation, and the construction equipment manufacturer pays and annual dividend of $1.44
a share. Also, assume that B earns $5.19 a share. The dividend payout is 28%, calculated as follow:

Dividend payout = Dividend amount / Earnings per share
= $1.44 / $5.19
= 28%

If B is currently selling for $73 dollar a share the dividend yield is 2% calculated as follow:
If B is currently selling for $73 dollar a share the dividend yield is 2% calculated as follow:
5. Dividend yield
= Dividend amount/ Market price
= $1.44 / $73
= 2 %

6. Total return

For example, assume, in addition, that you own 100 shares of the stock that you purchased for $40 a share and hold your stock for 4 years before deciding to sell it at the current market price of $73 a share. The payment of total dividends for 4 years is $4.11 per share. Your total return for this investment. The following formula is used to calculate total return:
Total return = Current return + capital gain
= ($4.11x100) + (73-40)x100
= $3,711

7. Annualized holding period yield
For example, the investment increased in value and the total return was greater than the current return. For an investment the that decrease in value, the total return will be less than the current return. And while it may be obvious, we should point out that the larger the dollar amount of total return, the better. As shown below, annualized holding period yield for this investment is 23% for each of the 4 years you held the investment:
Annualized holding period yield = (Total return / Original investment) x 1/n*
*n = number of years investment is held
= ($3,711 / $4,000) x 1/4
= 23 %

Beta is the risk that remains for a company even after we have diversified our portfolio
- A stock with a Beta of 0 has no systematic risk
- A stock with a beta of 1 has systematic risk equal to the "typical" stock in the marketplace
- A stock with a Beta exceeding 1 has systematic risk greater than the "typical" stock

*The majority of stocks have Beta between 0.5 and 2
8. Book value
Book value is the accounting value of a firm.
For example, C corporation has assets of 60 million and liability of 30$ million and has issued 1,000,000 share of common stock.
Book value = Assets - Liabilities / Shares Outstanding
= 60,000,000 - 30,000,000 / 1,000,000
= $30 per share

9.Market-to-book ratio
The book-to-market ratio attempts to identify undervalued or overvalued securities by taking the book value and dividing it by market value.
For example, if C corporation's stock has a current market price of 36$ a share
Market-to-book ratio = Market value per share/ Book value per share
= $36 / $30
= 1.20

Investment Theories
Investors sometimes use three different investment theories to determine a stock's value.

1.Fundamental analysis

- The financial strength of the company
- the type of industry the company is in
- New-product strenght of the company
- the economic growth of the overall economy.

2.Technical analysis

- price movement
- Total number of shares traded
- The number of buy orders
- The number of sell orders over a period of time.

3.Efficient market hypothesis(EMH)
Although it is a cornerstone of modern financial theory, the EMH is highly controversial and often disputed. Believers argue it is pointless to search for undervalued stocks or to try to predict trends in the market through either fundamental or technical analysis.

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1 Buying and selling stock

To purchase common or preferred stock, your brokerage firm must buy the stock in either the primary or secondary market.

2 Primary

A market in which an investor purchases financial securities, via an investment bank or other representative.

3 Investment bank
A financial firm that assists corporations in raising fund, usually by helping to sell new security issues.

4 Initial public affefing(IPO)
Occur when a corporation sells stock to the general public for first time.

5 Secondary markets
A market for existing financial securities that are currently traded among investor.

6 Securities exchanges
market place where member brokers who represent investors meet to buy and sell securities.

7 Specialist

Buys or sells a particular stock in an effect to maintain an orderly market.

8 The over-the-counter market(OTC)
A network of dealer who buy and sell the stocks of corporations that are not listed on a securities exchange

9 Who requlates the securities market?
Group1; Congress
Group2; The securities and exchange commission(SEC)
Group3; Individual state
Group4; The New York Stock Exchange(NYSE) and other self-regulatory
Group5; Individual Brokerage firm

10 Brokerage firms and account executives
Account executive(stockbroker):A licensed individual who buys or sells securities for client

11 Should you use a full service or a discount brokerage firm?
Full service: Beginning investor
Discount: People who understand how to of reseaching stock and prefer
Online: People who understand how to of reseaching stock and prefer

12 commission charge
Commission charges are based on the number of shares and the value of stock bought and sold.

13 Completing stock transactions

3 types of orders used to trade stock
~market order: current market value
~limit order: specified price
~stop order(stop-loss order): after its market price reaches a specified amount
Full transcript