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Investment Presentation

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Richard Collinson

on 13 January 2013

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Transcript of Investment Presentation

FTSE 100 / 250

S&P 500

Dow Jones

Nasdaq Composite
(index representing all the stocks on the Nasdaq(tech)) The Indices (index) Final Thoughts Important to know your personal risk tolerance when choosing investments

Balance between risk and reward

Set out a clear strategy, sticking to it will help you remain objective. Managing Risk and Returns What are stocks? What is the stock market?

Why should I invest?

How should I invest?

Where do I start?
What resources are out there? How can I learn more?
How do I start investing? Today’s Topics Sources of Information ... What is a stock? An Introduction to Investing Strategy and Further Research How to trade using Bull Bearings Order Types Online shareprice.co.uk - wide range of market data.

lse.co.uk - good clear graphs and data, no need to register.

motleyfool.co.uk - good discussion, news and advice

Bloomberg online - global information (Asia, Middle East, India) The FT

Benjamin Graham, The Intelligent Investor (established principles of balanced investing for private investors) In Print TV / Radio BBC World Business Report - 15 minute reviews of world business headlines.

Money Programme (Radio 4) - Good discussion. Kaplan Finance Group tchanler@me.com First of all, shares and stock are different words but in the stock market world, they often mean the same thing.

If you were to clearly define the two;

stock is the capital raised by a company through the issue of shares
a share is a single unit of stock Why do shares exist? Shares are issued by a company to raise money (capital) to help plan for future projects or because the owner/s of the company want a big lump sum of money for themselves as a reward for the hard work they have put into building up the company! Mr Bloggs now owns only 60% of the company meaning he still owns the company outright (over 50%) and therefore still gets to make the company’s strategic decisions. Why should the public buy shares offered by company A? The public would buy the shares in order to reap some of the future profits made by the company. They would receive these profits in the form of dividends.

but that’s not the only reason!

The public could also make money by a rise in the price of each share. This is called a capital gain on their stock. Types of shares There are two types of shares, ordinary shares and preference shares.
•Ordinary shares are the most common type of shares and carry flexible dividends (dividends that are adjusted
in accordance to a company’s profit),

These shares also carry full voting rights.

•Preferred shares have fixed dividends, which must be paid before any dividends are paid to ordinary shareholders.

However preferred shares carry no voting rights Supply and Demand The main reason for movements in a company’s stock price is due to supply and demand.

A share price goes up when…
•A company is making huge profits.
•Lots of people want to buy the shares to reap the rewards of the profits.
•Not many people want to sell the shares.
•There are not many shares left.

A share price goes down when…
•A company makes some losses.
•Lots of people want to sell the shares.
•Not many people want to buy the shares.
•There are too many shares. How to read a stock quote The UK the quote is in pence.
TSCO (Tesco)
bid price 363.10
ask price 363.10
last price 363.00

Buying 1 Tesco share would cost you £3.63, 100 would cost you £363.10p. Understanding company financial statements Turnover:Turnover is the total amount of money received by the company during its financial year. Rising turnover, together with rising profits can represent a buy signal.

Profit:The rise or fall in profits of a company is the best indicator to measure how well a company is doing.
Profit is worked out by sales – cost of sales

Earnings per share (EPS):Generally speaking this measures how much money a company is making for its shareholders.
EPS is profit derivable to shareholders / number of shares in issue during the year.

The higher the EPS of a company, the better for stock market traders.Consistent EPS growth is also important to traders as it shows the company is growing and therefore its share price is likely to grow, resulting in capital gains for traders! understanding company financial statements Cont. Price/Earnings ratio (P/E ratio)The price earnings ratio values a company against its per share earnings. The ratio is worked out by current share price / earnings per share

The P/E ratio helps a trader measure a stock against its competitors or the sector as a whole. If a company’s P/E ratio is higher than other companies, or it’s sector, then the market rates it highly. If it is lower than its competitors then it is best to leave the stock alone if you are thinking of buying.

Current ratio: The current ratio measures a company’s liquidity. It determines the companies ability to pay its short term debts with its short term assets.The formula to work out the current ratio is current assets / current liabilities Shares has several features Last Price: The last price the share was traded at.
Bid Price: The price at which you can sell your stock.
Ask Price: The price at which you can buy your stock.

Note: There is always a small difference between the bid and the ask price, this is where the market makers make their money.

52 week high: The highest price the share reached over the last 52 weeks.
52 week low: The lowest price the share reached over the last 52 weeks. Stock Ticker The ticker symbol is the shortened name for a company.

It is the 2-4 letter symbol next to the name of the share.

Example: VOD = Vodafone Volume The volume of a share refers to how many times the share has been traded in the day.
The higher the volume the more liquid the stock is.
This means the share is more stable as more people are willing to buy or sell the share when you need to get rid of it.

If a stock has an average volume of 5 million it means, on average, 5 million shares are traded each day.
Average volume is normally calculated over a 90 day period. Market capitalisation The market capitalisation refers to the value of the company in terms of issued share capital.

The formula for working out market capitalisation is (share price x no of shares in issue).

Companies with huge market capitalisation can directly influence the direction of the stock market, especially in the UK where there are less companies and where the bigger companies take up a large % of of the overall market capitalisation.

The market capitalisation of a company determines whether they make it into certain indices i.e. FTSE 100.Generally speaking, the smaller the market capitalisation of a share, the less liquid the share is. Sectors Different index’s and markets will group shares under different categories, however, here is a broad idea of the different sectors;

Basic materials – aluminium, steel, gold mining, metals, paper, containers, lumbar
Capital goods – aerospace, engineering, construction, machinery, manufacturing , electrical equipment
Communications – communication equipment, mobile phone, broadband
Consumer cyclical – automobiles, building materials, leisure time, retail, restaurants, textiles, home building
Consumer staples* – beverages, cosmetics, foods, medical products, tobacco
Energy – gas, oil
Financial – banks, insurance, loans, brokerages
Health care – pharmecuticals, private hospitals
Technology – computer software, electronics, photography, office equipment

Utilities* – water, electric, gas Stock MArkets Stock exchanges are key companies that allow the stock market to work as efficiently as it does.

They list shares prices for thousands of companies, they list the bid/ask prices of shares and enable quick electronic transfers of shares between people.

Some stock exchanges you might have heard of include NASDAQ, LSE (London stock exchange) and the NYSE (New York stock exchange).

A company must be listed as a PLC (public listed company) for people to trade it’s shares at a stock market. To be listed as a PLC a company must meet strict financial requirements. Bull and Bear If you hear the phrase “its a bullish market” or a “bearish market” its simply referring to whether there is a rising or falling trend in the market.

A bullish market refers to a market that has a long-term up trend. For a market to be bullish, investor confidence must be high and the market’s respective country will likely be showing solid economic growth. The number of stocks traded in a bull market is often high.

A bearish market is referring to a market which has a long-term downtrend. A bear market will often arise when its respective country is in recession. The number of stock traded in a bear market is often low. UK market

Advantages: If your from the UK you know many of the companies you are investing in.

The market is slightly less volatile therefore trading stocks carries less risk.

Disadvantages: Its expensive to buy and sell stocks (£6 buy and £6 sell on average).

Stamp duty 0.5%. This means if you buy £2,000 worth of shares, you will have to pay £10 to the government each time.

Open from 8-4:30 Advantages and Disadvantages of UK market Different Styles of Trading Broadly speaking, there are four main types of trading, day trading, swing trading, position trading and investing.

Day trading is when shares are bought and sold within 1 day, this can produce big profits but is acknowledged as one the riskiest forms of trading shares.

Swing Trading is when shares are kept between 2-14 days and the idea is to follow the current upward or downward trend, like day trading this can be very profitable.

Position trading is where shares are kept for 1-6 months, this style is used to follow the long term trends of stocks. This style is often used by people in full time jobs who can’t devote regular time to managing their stock market portfolio.

Investing is where shares are kept for 6 months or more, this style often involves investing in young or highly profitable companies in order to capture their growth with the investment or to receive their dividends. Fundamental analysis Traders go through two main processes when choosing shares. These processes are called fundamental and technical analysis.

Fundamental analysis is about evaluating companies financial health. This is an important stage in picking a stock. Simply put, you do not want to be buying shares in companies who are making losses as their share price is very likely to go down. Technical analysis

Technical analysis is the analysis of a company’s stock performance through the use of stock price charts. Technical analysis involves studying chart patterns, technical indicators and resistance lines to find out whether a stock is likely to rise or fall.

Countless studies have been undertaken on technical analysis to find the most profitable chart patterns, thus resulting in courses, books and e-books, which all offer you technical analysis techniques and strategies for making regular consistent profits.

The reason for going through these two processes is to gage the long term (fundamental) and short term (technical) prospects of a stock. If both fundamental analysis and technical analysis point in the right direction then it likely to be a good time to enter the stock trade.
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