Basics of-stocks-and-investing

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  1. 1. Introduction to Stocks and Investing :- Ved Prakash Pandaa
  2. 2. Objectives Explain What is a Stock Explain the Types of Stocks Explain the Classification of Common Stock Describe the Role of Beta in Your Portfolio List the Various Stock Screening Criteria Explain the Types of Analysis in Stock Trading Explain the Ratios for Valuing Firms List the Criteria for Choosing a Broker Explain the Common Stock Investing Strategies Explain the Steps of a Typical Stock Transaction Explain How to Read Stock Quotations Explain the Calculation of Price-to-Earnings Ratio (PE) Explain the Key Terms of Stocks and Investments Describe the Rights of a Stockholder Describe the Various Investment Options
  3. 3. Introduction Peter Looney works as an executive. For a long time, Peter has felt that he should invest the extra amount of money that he makes from his job.
  4. 4. Introduction He has been saving in cash form for a long time. However, he wants that he should use the saved amount to invest in something that could help him multiply his money and help grow his finances.
  5. 5. Introduction Peter has always thought of starting a business venture to grow his money, however, he is greatly averse to the huge amount of risk involved in any business venture. So, Peter starts asking advice from his colleagues about what possible investment options are available in the market.
  6. 6. Introduction George, one of Peters colleagues, advices him to invest in stocks and mutual funds. Stocks are the capital raised by a corporation through the issue of shares entitling holders to an ownership interest also known as equity.
  7. 7. Introduction Mutual funds are an investment vehicle made of pool of funds collected through a regulated investment company from many investors. This pooled money is then used for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets.
  8. 8. Introduction Money managers operate the mutual funds by investing the fund's capital and attempt to produce capital gains and income for the fund's investors. George tells Peter that by investing in stocks and mutual funds, Peter can earn a small share of the great profits that big and successful organizations make for themselves and their shareholders.
  9. 9. Introduction George tells him that although Peter will get to enjoy a part of the profit made by the organization, he will be spared of the hassles of running a business on his own, and also will undertake a much lesser risk than if he would have to run a business on his own. Therefore, although stocks and mutual funds would help Peter to multiply and grow his money, he would be able to do so by taking advantage of the stability and experience of these fast growing and stable organizations that have been operating and making profits for decades.
  10. 10. Introduction George also adds a word of warning for Peter. He tells Peter that the most important thing that he should keep in mind while investing in stocks and mutual funds is that he should determine the maximum risk that he is willing to take.
  11. 11. Introduction Peter should always make sure that he never invests more than his risk taking capacity. George assures Peter that if he takes calculated risks and invests wisely; then stocks and mutual funds prove to be a very lucrative way of growing his money.
  12. 12. Introduction Therefore, you can understand that investing in stocks and mutual funds are a great way to multiply and grow your money by undertaking calculated amount of risk according to ones own risk taking capacity. Let us learn about stocks and investing in detail.
  13. 13. Objectives Explain What is a Stock Explain the Types of Stocks Explain the Classification of Common Stock Describe the Role of Beta in Your Portfolio List the Various Stock Screening Criteria Explain the Types of Analysis in Stock Trading Explain the Ratios for Valuing Firms List the Criteria for Choosing a Broker Explain the Common Stock Investing Strategies Explain the Steps of a Typical Stock Transaction Explain How to Read Stock Quotations Explain the Calculation of Price-to-Earnings Ratio (PE) Explain the Key Terms of Stocks and Investments Describe the Rights of a Stockholder Describe the Various Investment Options
  14. 14. What is a Stock? Any business needs money or capital whenever it has to start its operations or expand its business operations. Thus, in order to raise this capital for a business start-up or expansion, the corporation would offer shares of stock for sale to the public.
  15. 15. What is a Stock? By selling these shares or stock to the public, the company is able to increase its finance reserves and also get the necessary funds to start operations or expand its operations. So, any individual who purchases a share or stock of a company becomes a part owner of a portion of that company, based upon the number of shares purchased compared with the number of shares that make up the companys total stock offering.
  16. 16. What are Stock Exchanges?
  17. 17. What are Stock Exchanges?
  18. 18. Why Stocks should be in Your Portfolio? It has been found over several decades that, as an asset class, common stocks have outperformed all other major asset classes. Also, stocks deliver strong long-term capital gains. They prove to be one of the best and most tax-efficient types of return.
  19. 19. Why Stocks should be in Your Portfolio? You should include stocks in your diversified portfolio because the individual stocks in a diversified portfolio can reduce the overall risk of your portfolio. Dividends and capital gains are taxed at a lower preferential federal tax rate and so if tax planning is done wisely, then stocks can prove to be tax-efficient assets.
  20. 20. Objectives Explain What is a Stock Explain the Types of Stocks Explain the Classification of Common Stock Describe the Role of Beta in Your Portfolio List the Various Stock Screening Criteria Explain the Types of Analysis in Stock Trading Explain the Ratios for Valuing Firms List the Criteria for Choosing a Broker Explain the Common Stock Investing Strategies Explain the Steps of a Typical Stock Transaction Explain How to Read Stock Quotations Explain the Calculation of Price-to-Earnings Ratio (PE) Explain the Key Terms of Stocks and Investments Describe the Rights of a Stockholder Describe the Various Investment Options
  21. 21. Preferred Stock Common Stock Lets look at each in detail. There are two main types of stocks that are offered by any company such as follows: Types of Stocks
  22. 22. Common Stock Common Stock is a voting stock. Hence, any individual who has purchased the common stock of a company is entitled to vote for appointing the officers of the company and its Board of Directors. Thus, common stock is the ownership share in publicly held company. Common stock holders have a residual claim on a companys assets. Each common stockholder or shareholder of a corporation is entitled to certain rights and obligations. Thus, each common stockholder has the right to vote. Moreover, if a common stockholder is not able to vote in person, he can give a written consent to give permission to someone else to vote on his behalf as a proxy. Common Stock
  23. 23. Common Stock Common Stock is a voting stock. Hence, any individual who has purchased the common stock of a company is entitled to vote for appointing the officers of the company and its Board of Directors. Thus, common stock is the ownership share in publicly held company. Common stock holders have a residual claim on a companys assets. Each common stockholder or shareholder of a corporation is entitled to certain rights and obligations. Thus, each common stockholder has the right to vote. Moreover, if a common stockholder is not able to vote in person, he can give a written consent to give permission to someone else to vote on his behalf as a proxy. Common Stock
  24. 24. Preferred Stock Preferred Stock as the names suggests has a preferential position over common stock. Therefore, during the payout of dividend to share holders, it is first paid to preferred stock owners before common stock holders. Preferred stock is also ownership shares of a company. However, it differs from common stock because in preferred stocks, the dividend is guaranteed and paid before dividends on common stock are paid. On the other hand, if profits of the company increase, the dividend for preferred stocks isnt increased accordingly. Preferred Stock
  25. 25. Preferred Stock Preferred Stock as the names suggests has a preferential position over common stock. Therefore, during the payout of dividend to share holders, it is first paid to preferred stock owners before common stock holders. Preferred stock is also ownership shares of a company. However, it differs from common stock because in preferred stocks, the dividend is guaranteed and paid before dividends on common stock are paid. On the other hand, if profits of the company increase, the dividend for preferred stocks isnt increased accordingly. Preferred Stock
  26. 26. Large Capitalization / Large Cap Stocks Mid Capitalization / Mid Cap Stocks Small Capitalization / Small Cap Stocks The following are some of the key asset classes for common stocks: Key Asset Classes for Common Stocks
  27. 27. Large Capitalization / Large Cap Stocks Mid Capitalization / Mid Cap Stocks Small Capitalization / Small Cap Stocks The following are some of the key asset classes for common stocks: Key Asset Classes for Common Stocks Large Cap stocks are stocks of companies with market capitalization (shares outstanding times price) of greater than $10 billion. Mid Cap stocks are stocks of companies with market capitalizati