Stock: A share of ownership in a corp. Shareholder: Partial business owner Limited Liability- Can only lose up to what you invested!! 2 types of.

Stock: A share of ownership in a corp.

Shareholder: Partial business owner Limited Liability- Can only lose up to

what you invested!! 2 types of Stock:1)Common Stock: Holder has voting

rights (pick B.of D’s). Will not receive dividend until after bondholders and preferred stockholders have been paid. (Tends to be more volatile than pref. Stock)

2) Preferred Stock: Holder has no voting rights but will receive a dividend before a common stock holder. Tends to provide more stability.

Dividend: A portion of profit that is returned to the shareholders. Not always a true indication of good profit (Retained earnings v. R & D)

You want to try to “buy low and sell high”- This is called a Capital Gain.

Consider this example: You bought 50 shares of stock in Klein Corp. 8

months ago you bought the stock for $50 per share. Currently it is listed at $60 a share. How much did you gain or lose?

8 months ago: Currently:50 shares X $50 = $2,500 50 shares X

$60 = $3,000You have a Capital Gain of $500

If the stock price falls after you buy it you will experience a capital Loss

You could make money if this happens if you did “short sell and cover” the stock.

Ex. Of short selling: You borrow 100 shares from your broker at $10 per share and you (short) sell them. When the price drops to $7.50 a share you buy 100 shares back(short cover) and return them to your broker and you gain $2.50 / share.

Dangers involve: Price going up, very slow price drop (interest adding up)

Simple answer: Supply and Demand

If more people want to buy the stock (demand increases) than the Price goes UP (positive news, products, mergers, strong earnings, expected growth, etc.) Bull Market: (Buyer’s Market) Overall stock prices on the

rise

If more people want to sell the stock (Supply increases) than the Price goes DOWN (Negative news, recalls, poor quality products/ services, low earnings/ profit, etc.) Bear Market: (Seller’s Market) Overall stock prices falling

More complicated answer: Technical analysis: Looking at stock quotes, financial info.,

past/present/ future earnings, studying line charts to ID trends.

Let’s take a look at some numbers on Google Finance

Yahoo can give you info. On industry averages

Outperform Mr. Klein and earn some extra credit and R-E-S-P-E-C-T!!

Join the action at:www.howthemarketworks.com

'52-Week Range'

Technical analysts compare a stock's current trading price to its 52-week range to get a broad sense of how the stock is doing, as well as how much the stock's price has fluctuated. This information may indicate the potential future range of the stock and how volatile the shares are.

Market CapitalizationMarket Cap. = # of shares outstanding X Current market

price

Ex: 35,000,000 shares X $100/ shareMarket Cap = $3.5 Billion (Mid Cap)

Large Cap = $10 billion +Mid Cap = $2 to $10 billionSmall Cap= under $2 billion

Price to Earnings Ratio P/E

Market value per shareP/E Ratio = Earnings per share (EPS)

P/E ratio = 20- means investor is willing to pay $20 for $1 of current earnings

-Must compare “apples to apples”- P/E ratios are more beneficial when comparing stocks w/in the same industry. (Don’t compare P/E of a utility to a high tech)

Earnings per Share: EPS

Net Income – DividendsEPS= Average Outstanding Shares

EPS can be misleading in that investors should consider how much capital/ investment was needed to reach this earnings level (Efficiency)

Dividend Yield Annual dividends per

shareDividend Yield = Price per ShareMeasures the “Bang for your Buck” (How

much cash flow you get for each dollar invested) Ex:

ABC Co. XYZ Co.Dividend = $1 Dividend = $1Stock Price = $20 Stock Price = $40Dividend Yield = 5% Dividend Yield

= 2.5%- Investor would likely favor ABC stock

Beta: A measure of historical riskUses past perf. (Regression Analysis)Beta = 1- Stock prices move w/ the

market

Beta < 1- Stock is less volatile than the market (often “Utilities” stock) Ex: .5 (50% less volatile

- Less risk, often less reward

Beta > 1- Stock is more volatile than the market (Ex: 1.2- 20% more volatile)

- More risk, often more reward