INTRO TO STOCKS What is it?

? o A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings. Basically, the buyer is a part owner of the company. o Also called: equities or shares Kinds: o Common: Allows for voting rights and dividend yields. o Preferred: Typically has no voting rights, but has a larger holding on yields and assets. Preferred shareholders have high priority than common shareholders. Example: Warren Buffet and Goldman Sachs deal. Goldman agreed to pay a 10% dividend, or $500 million a year to Buffet. Goldman had the right to buy back the shares at any time for a premium of 10%. This yield was much higher than the yield to the common stock. Classifications o Indices: Dow Jones (DJIA): 30 Blue Chip stocks (see below). Oldest index in the U.S. Nasdaq: Usual home for tech-stocks. Consists of over 5000 different companies and is electronically traded. Most are small-cap companies and are traded as over the counter. S&P 500: About $5 trillion worth of companies are indexed here. One of the most reliable indicators of the stock market. o Exchanges (in the U.S.): NYSE, NASDAQ, AMEX. o Large international exchanges: London, Tokyo, Shanghai, Hong Kong, Deutsche Brse, etc. o Blue Chips: These 30 stocks are part of the Dow Jones Industrial Average. These companies are usually well known and have had high dividends for many years. I.E.: GE, Pfizer, McDonalds, etc. o Income: These stocks are usually based on dividends rather than growth in share price. o Growth: Stocks usually have low or no dividends that investors rely on large increases in share price. These are usually comprised of small companies. How to invest? o Stock Brokers o Hedge Funds: An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in markets. Wall Street? o Mutual Funds: A collection of stocks and bonds, it is the most popular way to invest. Investors pool their money together and allow a manager invest in an array of companies, bonds, etc. I.E.: 401ks, PIMCO, Fidelity, etc. PROs: convenience | CONs: fees, taxes o Online brokers: They trade stocks at about $4 or higher per trade. They usually have professional stock software to help trading. I.E.: e-Trade, TD Ameritrade, etc. o ETFs: These are funds that track indices (Dow, Nasdaq, S&P, etc.) ETFs are supposed to mirror the results of the index it tracks. Benefits: Passive management (only minor adjustments), cost-effective, low taxes and long-term growth Charts: 3 popular types (Line, Bar, Candlestick)