Understanding Stocks

What is a stock? A share in the ownership of a

company

When you own stock, you are automatically an “owner”/”shareholder” in that particular company

(Funds – buy stocks that are bundled together)

How much do I own? Ownership percentage

divide number of shares you have by the total number of shares outstanding/offered by the company

Apple 908 million shares Own 10 shares

10/908 million – you do the math!! .01%...

What companies have stock? Usually incorporate (go public)

Can stay private & ask venture capitalists to invest (risky)

Initial Public Offering – first time (Facebook) Price determined by owners & investment bank

Purpose raise revenue, decrease own financial risk

Take out a loan (debt financing) or sell shares (equity financing)

What it means for the company? Owners not the only owners any more –

might not even be majority owners

Board of Directors – chosen by shareholders Share in decision making process

Warren Buffet could become a majority share holder & make decisions!

What determines a stock’s price? Initially – investment bank & owner

Supply & demand P/E Ratio Current events

Benefits of stock ownership

Making Money!! Selling stock at a profit (stock appreciates

& you sell it) Dividend paying stocks (more steady)

Percentage of companies profits paid to shareholders

No liability

Risks of Stock Ownership Bankruptcy – you are the last to be paid Stock price can go down Only really gain if you sell

The stock market A market/exchange where stocks are

bought and sold Computerized really

NYSE – people running around AMEX NASDAQ

Technology companies

How you buy a stock

When do you buy??

Bull marketAll going up

Bear marketAll going down

What stocks should you buy?