We think you have liked this presentation. If you wish to download it, please recommend it to your friends in any social system. Share buttons are a little bit lower. Thank you!
Presentation is loading. Please wait.
Published byMagnus Mills
Modified about 1 year ago
© 2013 Pearson Education, Inc. All rights reserved.13-1 Chapter 13 Investing in Stocks
© 2013 Pearson Education, Inc. All rights reserved.13-2 Why Consider Stocks? When you buy common stock, you purchase a part of the company. Returns: –Dividends—the company’s distribution of profits to stockholders. –Capital appreciation—the increase in the selling price of a share of stock.
© 2013 Pearson Education, Inc. All rights reserved.13-3 Why Consider Stocks? Neither dividends nor capital appreciation is guaranteed with common stock. Dividends are paid at the board’s discretion. Capital appreciation takes place when the company does well.
© 2013 Pearson Education, Inc. All rights reserved.13-4 Why Consider Stocks? Over time, common stocks outperform all other investments. Stocks reduce risk through diversification. Stocks are liquid. Growth is determined by more than interest rates.
© 2013 Pearson Education, Inc. All rights reserved.13-5 Figure 13.1 Growth of $100 Invested in Different Asset Classes, 1951–2010
© 2013 Pearson Education, Inc. All rights reserved.13-6 The Language of Common Stocks Limited Liability Claim on Income –Declaration date –Ex-dividend date Claim on assets
© 2013 Pearson Education, Inc. All rights reserved.13-7 The Language of Common Stocks Voting Rights –Proxy Stock Splits Stock repurchases
© 2013 Pearson Education, Inc. All rights reserved.13-8 Stock Indexes: Measuring the Movements in the Market Stock Market Index—a measure of performance of a group of stocks that represent the market or a sector of the market. Dow Jones Industrial Average (DJIA) or Dow Standard & Poor’s 500 (S&P 500) and other indexes
© 2013 Pearson Education, Inc. All rights reserved.13-9 Figure 13.2 The Dow Jones Industrial Average (DJIA) Since 1990
© 2013 Pearson Education, Inc. All rights reserved.13-10 Market Movements Bear market—characterized by falling prices. Bull market—characterized by rising prices.
© 2013 Pearson Education, Inc. All rights reserved.13-11 General Classifications of Common Stock Blue-Chip stocks Growth stocks Income stocks Speculative stocks
© 2013 Pearson Education, Inc. All rights reserved.13-12 General Classifications of Common Stock Cyclical stocks Defensive stocks Large caps, mid-caps, and small caps
© 2013 Pearson Education, Inc. All rights reserved.13-13 Valuation of Common Stock The Technical Analysis Approach The Price/Earnings Ratio Approach The Discounted Dividends Valuation Model
© 2013 Pearson Education, Inc. All rights reserved.13-14 Technical Analysis Approach Focuses on demand and supply Uses charts and computer programs to identify and project price trends. Greed pushes money into a rising market. Fear pulls money out of a declining market.
© 2013 Pearson Education, Inc. All rights reserved.13-15 Technical Analysis Approach Interpretation of charts and graphs and mathematical calculations of trading patterns to spot trend or direction for stocks Of little value—cannot identify trends before they happen Avoid—encourages moving in and out of market instead of buying and holding.
© 2013 Pearson Education, Inc. All rights reserved.13-16 The Price/Earnings Approach P/E ratio or earnings multiple—price per share divided by the earnings per share Higher firm’s earnings growth rate, higher P/E ratio Higher investor’s required rate of return, lower P/E ratio. Fundamental analysis
© 2013 Pearson Education, Inc. All rights reserved.13-17 The Discounted Dividends Valuation Model The value of any investment is the present value of the benefits or returns received from the investment. Value of a share of common stock = present value of the infinite stream of future dividends. Value of a common stock = dividends next year________ required rate of return – growth rate
© 2013 Pearson Education, Inc. All rights reserved.13-18 Why Stocks Fluctuate in Value Interest Rates and Stock Valuation Risk and Stock Valuation Earnings (and Dividend) Growth and Stock Valuation
© 2013 Pearson Education, Inc. All rights reserved.13-19 Dollar Cost Averaging Purchasing a fixed dollar amount of stock at specified intervals. Same dollar amount each period will average out the fluctuations. Buy more shares at a lower price, fewer shares at higher prices. Keeps you from trying to time the market.
© 2013 Pearson Education, Inc. All rights reserved.13-20 Buy-and-Hold Strategy Involves buying stock and holding it for a period of years. Avoids timing the market. Minimizes brokerage fees, transaction costs. Postpones capital gains taxes. Gains taxed as long-term capital gains.
© 2013 Pearson Education, Inc. All rights reserved.13-21 Dividend Reinvestment Plans (DRIPs) Automatically reinvest the dividends in same firm’s stock without brokerage fees. Use a DRIP to reinvest rather than spend your dividends. Still pay income taxes. Stuck reinvesting in old company instead of new.
© 2013 Pearson Education, Inc. All rights reserved.13-22 Risks Associated with Common Stocks Risk and return go hand in hand. Principle 8—can eliminate risk associated with common stock by diversifying. Only systematic risk remains. Measure systematic risk using Beta.
© 2013 Pearson Education, Inc. All rights reserved.13-23 Figure 13.5 The Risk–Return Relationship
© 2013 Pearson Education, Inc. All rights reserved.13-24 Another look at Principle 8: Risk and Return go hand in hand Beta—measure of how responsive a stock or portfolio is to changes in the market portfolio. Beta benchmark for market = 1 Beta > 1—stock moves up and down more than market Beta <1—stock moves up and more less
© 2013 Pearson Education, Inc. All rights reserved.13-25 Risks Associated with Common Stocks Short-term investments in stocks are very risky Holding stocks longer reduces variability of average annual return. Investors can afford to take on more risk as investment time horizons increase—they have more opportunities to adjust saving, consumption, and work habits.
Investing in Stocks Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Learning Objectives 1. Invest in stocks. 2. Read stock.
PART 4: MANAGING YOUR INVESTMENTS Chapter 13 Investing in Stocks.
1 Chapter 13 - Stock Purchase stock = buy part of company Returns from dividends and capital appreciation –Dividends – distribution of profits –Neither.
Prentice-Hall, Inc.1 Chapter 13 Investing in Stocks.
Bennie D Waller, Longwood University Personal Finance Bennie Waller Longwood University 201 High Street Farmville, VA.
Investing in Stock Chapter 12 Personal Finance Characteristics of Stocks Common Stock – A type of stock that pays a variable dividend and gives.
Stock Terminology (continued) Investors make money in stocks in two ways: –Dividends Companies may make payment to shareholders as part of the profits.
Chapter 14: Investing in Stocks. Objectives Describe stocks and how they are used by corporations and investors. Define everyday terms in the language.
Chapter Investing in Stocks Evaluating Stocks Buying and Selling Stock 12.
Evaluating Stocks Buying and Selling Stock INVESTING IN STOCKS.
Chapter © 2010 South-Western, Cengage Learning Investing in Stocks Evaluating Stocks Buying and Selling Stock 12.
Chapter Investing in Stocks Evaluating Stocks 12.
Chapter 12 Investing in Stocks. Evaluating Stocks Characteristics of stock Public corporation – company whose stock is traded openly Stockholders (shareholders)
Investing in Stocks Chapter 12 Goals for Chapter 12.1 Describe the features of common stock and compare it to preferred stock. Discuss stock investing.
BUSINESS AND PERSONAL FINANCE Chapter 18 Stocks & Stock Evaluation.
FAMILY ECONOMICS & FINANCIAL EDUCATION © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market.
Learning Objective # 3 Explain how you can evaluate stock investments. LO#3.
G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take.
Savings, Investments & the Stock Market. Saving and Investment Saving Not consuming all current income Not consuming all current income Examples: Savings.
Private Corporations – shares of stock are NOT openly traded in stock markets Public Corporations – sells shares openly where anyone can buy them.
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. CHAPTER PLAYLIST SONG: “BIG MONEY“BIG MONEY” BY GARTH BROOKS.
Investment Strategies Career & Financial Management Mrs. Wilson.
BUYING AND SELLING STOCK INVESTING IN STOCKS 12.2.
Copyright © 2003 South-Western/Thomson Learning All rights reserved. Chapter 6 Investment Companies.
Chapter 14: Investing in Stocks and Bonds. Common stock Preferred stock Bonds Stocks and Bonds and How They are Used.
1 Common Stocks: Analysis and Strategy Chapter 11 Jones, Investments: Analysis and Management.
Do Now If you didn’t finish your study guide on Friday, come up and get it. Finish answering the questions. We will correct them in a few minutes.
Investments Joan Koonce, Ph.D., AFC ® Extension Financial Planning Specialist.
© South-Western Educational Publishing Chapter 12 Investing in Stocks Evaluating Stocks Buying and Selling Stock.
Stock Market general term to describe all stock transactions.
Copyright © 2003 South-Western/Thomson Learning. All rights reserved. Chapter 08 Dividends: Past, Present, and Future.
Chapter 14: Investing in Stocks and Bonds. Objectives Describe stocks and bonds and how they are used by corporations and investors. Define everyday terms.
Chapter 14 Investing in Mutual Funds Copyright © 2012 Pearson Canada Inc
Investment Basics A Guide to Your Investment Options Brian Doughney, CFP® Wealth Management Senior Manager.
Stock Valuation. 2 Valuation The determination of what a stock is worth; the stock's intrinsic value If the price exceeds the valuation, buy the stock.
Copyright © 2003 South-Western/Thomson Learning All rights reserved. Chapter 8 Investment Companies.
© 2008 Thomson South-Western CHAPTER 12 INVESTING IN STOCKS AND BONDS.
© 2009 Cengage Learning/South-Western Valuing Stocks Chapter 5.
G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market – Slide 1 Funded by a grant.
What are stocks? Represent a fraction of ownership in a corporation Referred as: – Shares – Equity – Stock.
© 2017 SlidePlayer.com Inc. All rights reserved.