Stock Market Day 3

Home Depot

Exxon Oil

DuPont M

icrosof

t

Kraft

Wal-

Mart

Coca Cola

HJ Heinz

Coca Cola

AT&T

Walt Disney

McDonalds

Review from Day 2

True or False In the primary market, investors trade with investors.

A blue-chip stock – Answer True or False for each Trades for less than $1 Is high quality stock from high quality companies Example is The Ford Motor Company Is stock that comes with higher than average risk

A stock that trades for less than a dollar is usually called a ___________ stock

Review from Day 2

Commodities include any _____ materials

Which of the following are commodities Oil Car motor Battery Fish Tea Binoculars Spices – salt, pepper, basil Coca Cola beverage Rubber boots Tulip Bulbs Wild Turkeys Water Clothing Silk Iron Ore Glass Nail Polish Pearls

Review from Day 2

True or False You can go to jail for insider trading.

True or False It is easy for the Securities Commission to catch an inside trader

True or False You are not guilty of insider trading if you wait to act until the secret information is made public.

True or False You might pay a fine if you are caught for insider trading.

Stock MarketDay 3

Equity - Another word for Shares

Issued and outstanding – the number of shares that exist for shareholders to buy.

Brokers

Act as an intermediary between buyers and sellers

Stockbrokers work for brokerage firms and do the buying and selling of stocks.

You may access brokers in person, by phone or by the internet.

E*Trade is a popular site that offers broker services to the public. E-Trade baby commercials are always a hit during the super bowl.

How do brokers make money?

Some brokers charge a FLAT FEE – eg. $10 per trade, but if the broker is giving you advice it may be more like $20-$40 for the trade.

Other brokers charge a % fee on the dollar amount of your trade.

Eg. You buy 100 shares of IBM at $183 per share which makes a total of $18,300. If the broker charges you 2% then you owe him .02 x 18,300=$366. Your total cost of buying the shares is 18,300 + 366 = 18,666.

Cash Accounts vs. Margin Accounts

For a broker to be able to buy and sell shares for you, you must set up an account with the brokerage firm. Then they can take from it or add to it as they buy and sell for you.

Cash Account means that your money is sitting in the account for the broker to use

Margin Account means that the money you are using to buy shares is BORROWED from the brokerage firm. This is very risky because if your investments don’t earn enough return to cover your interest charges you will go broke.

Common Shares vs. Preferred Shares

Common Shares – shares that have voting rights – each share gives you 1 vote. If you own enough shares you have a lot of voting power in a company. These shareholders have a right to share the profits of the company. 40 million Americans own common stock

Preferred Shares – Shares that have NO voting rights BUT are entitled to a dividend BEFORE common shareholders

Dividends – Cash vs. Stock

Dividends are a payout of company profits to shareholders. Usually paid QUARTERLY – 4 times a year

Cash Dividends – Shareholders get cash

Stock Dividends – Shareholders get more shares in the company. The advantage here is that the company doesn’t have to spend its cash to reward shareholders.

Market Value

Market value is calculated by taking the

number of shares outstanding x current share price

Stock Split vs. Stock Consolidation

Stock Split – when the price of a share gets too high it is sometimes LESS APPEALING to investors. If the company wants to get trading going a gain (give it a kick start) then it will do a 2 for 1 split or 3 for 1 split. This means that

Eg. $50 share will now trade for $25 but each shareholder will have 2 shares now instead of 1. This is usually good for the company because it gets trading going again and and investors start buying which pushes up the stock value.

THERE ARE NOW MORE SHARES OUTSTANDING

Stock Consolidation

If the share price of a stock it too low, the company might decide to COMBINE shares.

Eg. There are 100,000 shares outstanding and each share is trading for $7. The company decides to combine 4 for 1. So now the share price is $28 (7x4) per share but there are only 25,000 shares outstanding.

THERE ARE NOW FEWER SHARES OUTSTANDING

STOCK QUOTATIONS

The internet and newspapers give you stock quotations by the second (internet) and daily (newspapers)

Internet Stock Quotation

What is an Index?

A stock market index is an average of a group of shares and its purpose is to give shareholders an idea of where the stock market is TRENDING ON AVERAGE.

Common, Well Known Indexes Dow Jones – an average of 30 high profile stocks that trade

on the NYSE S&P 500 – an average of 500 US equities TSX Composite – The Canadian equivalent of the S&P –

includes the largest companies on the TSX.

Dow Jones Index over 5 days

Notice how trends seem to be similar

YieldAnother term for RATE OF RETURN

Eg. A stock goes from $40 to $45 today, its yield for the day is(45-40)/40 = .125 = 12.5%

Yield can also be negativeEg. Stock price falls to $125 from a price of $130 today. Its yield is automatically negative since price fell

(125-130)/130 =- .039 = -3.9%