ch14investinginstocks.ppt

Investing in Securities Securities include a broad range of investments. Stocks. Bonds. Mutual funds. Options. Commodities. The focus in this chapter is on investing in stocks. Beginning to Invest in Stocks Good investors know something about the company before they invest in the company’s stock. Gather information to evaluate a potential investment in a stock. Learn what the information you gather means. Are sales increasing? Are revenues increasing over time? Are earnings per share increasing over time? There are periods where stocks decline in value. The key to success is to allow investments to work for you over the long-term. To raise money to expand a business. They don’t have to repay the money a stockholder pays for stock. Dividends are not mandatory. Most corporations distribute 30-70% of their earnings to stockholders. In return for investing in the company, stockholders have voting rights. Why Do Investors Purchase Common Stock? They can make money in three ways. Income from dividends in the form of cash or additional stock. Dollar appreciationof stock value. Possible increased value from stock splits. When Should You Sell a Stock? Follow the value of the stock. Do you have a certain price at which you will sell? Watch the company’s financials - are profits going up or down? If their profits are well below the industry average it may be time to sell. Track the firm’s product line. Are they state-of-the-art or becoming obsolete? Monitor economic developments. For example, will people buy cars if interest rates or unemployment rates are high? Be patient. Allow time for a good stock to increase in value before you sell. Preferred Stock Investors in preferred stock receive cash dividends before common stock holders are paid any cash dividends. The dividend amount is either a stated amount of money for each share of preferred stock, or a percentage of the par value. Par value is an assigned dollar value that is printed on a stock certificate. Yo