Stock Price - Brooklyn Public Library

Brooklyn Public Library
Mina Ennin Black
About Me
•  Financial Planner
•  Former Financial Advisormanaged over half a billion in assets
•  10 years experience in Wealth Management
•  Creator of the Financial Phytness Iphone app
•  Currently teaching financial & investment
management to groups, companies and
organizations
www.intheblackworkshops.com
•  Follow me: @wealthwithmina
What This Course Covers
-Foundation and knowledge of financial markets
including stocks, bonds, mutual funds
-How to trade stocks: placing different types of orders
-Learn about technical, fundamental and cyclical analysis
-How to build a diversified investment portfolio
depending on your life stage
-Understand investment risk and be able to calculate
individual goals and objectives.
-How to track investments using publications and the
media (i.e. WSJ, Financial Times, etc.)
AGENDA
•  INVESTOR KNOWLEDGE QUIZ
•  SAVING VS. INVESTING
•  WHY INVEST
•  INVESTMENT TYPES
•  KNOW YOUR RISK TOLERANCE
•  INTRO TO STOCKS
•  STOCK EXCHANGES
•  HOW DO I MAKE MONEY?
•  CHOOSING STOCKS AND TRADING
•  HOW DID YOU DO? EVALUATE YOUR
PERFORMANCE
•  INTRO TO STOCK MARKET GAME
It's not how much money you make, but how
much money you keep, how hard it works for
you, and how many generations you keep it for
- Robert Kiyosaki
If you aren’t willing to own a stock for 10 years,
don’t even think about owning it for 10 minutes
– Warren Buffett
4 Ways To Make Money
Money Made
By Selling
Your Time
How most people
make money
Interest
Income on
Money Lent
Dividend
Income from
Profits on
Businesses
Owned
Capital Gains
Income
Example: A certificate Your Money
of deposit
Works For You
Capital Gains Example:
Ex. You bought Apple for $195 a share.
You sell it for $400 a share. The $305
difference is your capital gain.
2 Ways To Grow Your Money
Savings Accounts
Investment Account
What Is Investing?
Investing is putting your money
to use to make money on it.
Some examples of investments
are stocks, bonds, mutual
funds, and real estate.
WHAT’S THE DIFFERENCE?
Savings
Investments
Goal
Short-term needs or
emergencies
Long-term growth
Products
Savings Account,
money-market account,
CD
Stocks, Bonds, Mutual
Funds, Op
Risks
None if FDIC insured
Varies depending on
product
Source of Return
Interest you receive
from money you
deposited
Interest, Dividends,
Capital Gains, Capital
Losses
Key Advantage
Money is safe and
easily Accessible
Your return outpaces
inflation over long term
Key Disadvantage
Returns usually don’t
outpace inflation
Risk of losing money
Source: IPT
3 Things You Should Know:
You Can Create Wealth
Through Investing
Never Invest
Money You Need
Pay off any high
interest debt first
Before You Invest
Take A Financial
Inventory
Set Your Goals: Be Specific
(ex. Save for a child’s college
education in 16 years)
Pick A Date: When will you need
the money? – Time Horizon
Before You Invest
§ Annual Income – Annual Expenses =
Free Capital
§ Free Capital – Emergency Savings =
Amt available for investing
Rules for Successful Investing:
First Step in Investing Is To Save
Determine Your Objectives
Evaluate The Risk
Diversification & Asset Allocation
Different Types Of
Investments
§  Bonds
§  Stocks
§  Mutual Funds
§  Hedge Funds
§  Options
§  Commercial Paper
§  Drips
Where Are They Held?
§  Retirement Accounts: 401(k),
403(b), 457, TSP, Traditional IRAs,
Roth IRAs, SEPS, SIMPLEs
§  Brokerage Accounts: Cash
Management Accounts—Nonretirement Accounts
§  College Savings Accounts:
Education Savings Accounts, 529
Savings, UTMA/UGMA
§  CONSERVATIVE
§ 
MARKET UP 10%; YOU’RE UP
5%
§  MODERATE
§ 
MARKET UP 10%; YOU’RE UP
10%
§  AGGRESSIVE
§  MARKET UP 10%; YOU’RE UP
20%
RETURN
KNOW YOUR RISK TOLERANCE
RISK
STOCKS
30.00
%
20.00
%
50.00
%
STABLE
VALUE
BONDS
STOCKS
Stocks: Shares of ownership in a company
What Does Stock Ownership Mean?
Voting Rights for certain stocks
Owning shares in Apple doesn’t mean you can go
help yourself to free Iphones at the Apple store.
WHY DO COMPANIES ISSUE STOCK?
To raise money to start a business or grow a
business
To help pay for ongoing business expenses
They don’t have to repay the money
WHY DO PEOPLE BUY STOCK?
We get income from dividends (not always!)
The stock price could go up (capital appreciation)
WHY DO PEOPLE BUY STOCK?
McDonald’s (MCD) -Upside
Citigroup ( C ) - Downside
§  Went public in 1965 at $22.50 per
§ Nov. 2007: If
share
§ If
you bought 100 shares in
1965
& held them until 2012
74,360 shares worth
$7.4 million
you bought
Citigroup for $35 a share
& Sold The Next Year
Nov. 2008 for $6 a share
Down 83%
Common
§  Majority of
2 Types of Stocks
Preferred
stock issued
§  Ownership in company
§  Claim on profits
§  One vote per share
§  Highest return
§  Most risk (bankruptcy)
§  Variable dividends
§  Never guaranteed
§  No voting rights
§  Investors guaranteed fixed
dividend forever
§  In bankruptcy, preferred
shareholders are paid before
common
§  Closer to debt than stock
How Are Stocks Classified?
BLUE
CHIPS
Stocks issued by well-established
companies with sound financial
histories; Dow Jones
Growth
Stocks
Shares of companies with the
potential to generate aboveaverage revenues and profit
growth
Income
Stocks
Pay out a relatively high
percentage of their earnings in
the form of dividends
Value
Stocks that are cheap in relation
to profits, sales, cash flow or the
value of the company’s assets
How Are Stocks Classified?
Defensive
Companies whose sales of goods
and services hold up in bad
economic times
Cyclical
Companies whose sales and
earnings are highly sensitive to
the ups and downs of the
economy
Foreign
Shares of companies that provide
exposure to overseas currencies
Market
Cap
Large cap, Mid-cap, Small cap –
refers to the overall value of all
shares of the company’s stock
HOW DO STOCKS TRADE?
On the Stock Exchange
Marketplace where brokers who
represent investors meet to buy and
sell securities.
Two Primary Exchanges:
New York Stock Exchange
NASDAQ
**We use indexes and averages to track overall direction of
the market
NEW YORK STOCK EXCHANGE
New York Stock Exchange
Founded in 1792
Face-to-face trading floor
Broker to specialist to
broker
Stocks traded on NYSE: GE,
McDonald’s, Coke, WM
Floor of NYSE
NASDAQ
“Virtual” Over-the-counter
-No central location
-No floor brokers
-Trading done through
computers
-Established in 1971
Tech-heavy listings –
Example: Facebook
Dow Jones & S&P 500
Dow Jones Industrial Index
-Oldest and best known
index
-Index of 30 widely held
stocks
-All companies are major
factors in their industries
Standard & Poor’s 500 index
-Leading companies from
all sectors of the economy
-Benchmark for majority of
growth mutual funds
WHERE DOES STOCK PRICE
COME FROM?
Stock price is
Tied to how much investor’s perceive the entire
company to be worth right now
AND
How much the company is going to EARN in the
future
Market Capitalization (market cap) = how much the total
company is valued at
Stock Price * Shares Outstanding
Pay attention to this and NOT stock price
WHAT CAUSES STOCK PRICES TO
CHANGE?
The easy answer…
Supply and Demand
More wanting to buy, less wanting to
sell
Less wanting to buy, more wanting to
sell
HOW DO YOU MAKE MONEY?
§  Investors make money in stocks in two ways:
§  Dividends
§  Companies may make payment to shareholders as part of the
profits.
Capital Gains (CG)
§  Investors purchase shares in companies with the expectation
that the price of the shares will increase. This increase in share
value is a capital gain
BEFORE YOU INVEST
BEFORE YOU INVEST
What Kind Of Investor Are You?
ACTIVE INVESTOR
•  Choose a few securities to invest in
•  Think markets aren’t efficient
•  Goal: Outperform index or entire
market
•  NBA analogy: Invest in Lakers;
Cavaliers; Knicks, Heat
PASSIVE INVESTOR
•  Buy & Hold
•  Invest in Index Fund
•  Invest in Exchange Traded Fund
(ETF)
•  Goal: Mimic the index; match market
returns
•  Boglehead
•  NBA analogy: Invest in all 30 teams
YOU CAN BE A LITTLE BIT OF BOTH
BEFORE YOU INVEST
Ask Yourself What Kind Of Investor Are You?
GROWTH INVESTOR
•  Look for companies that have great
sales & earnings
•  Key measurements: Earnings &
Current Stock Price
•  Don’t Care About Dividends
•  Earnings Should Grow Each Year
•  Set Minimum Criteria For Earnings
Growth: Ex: 15%
•  Example of Growth Co: Chipotle;
Sam Addams (Beer); Google
•  Growth Stocks Can Be Expensive
VALUE INVESTOR
•  Cheap Stocks (Not Penny Stocks)
•  Key measurements: Stock Price To
Earnings; Assets; Cash Flow; Sales
Volume;
•  Dividends Matter
•  Low P/E ratios; Low Price-to-book
Ratios
•  Example of Value Co: Berkshire
Hathaway – 1967: $12/share
• 
2014: $223,065 (BRK.A)
-YOU CAN BE A LITTLE BIT OF BOTH
BEFORE YOU INVEST
Fundamental Investor: Use financial
statements (like the 10-k) to gain insight into
future performance
Technical Investor: Follow the price
movements in the market using charts
Investment Selection Criteria—Can use both
-Find Stocks Using Fundamental Analysis
-Use Technical Analysis To See How Market & Stocks Of Interest
Are Doing For Confirmation
-If You Can’t Explain What The Company Does, Then You
Shouldn’t Buy It
SELECTING STOCKS
THINGS TO THINK ABOUT
•  NO ONE WAY TO PICK STOCKS!
•  NO FOOL PROOF FORMULA
•  COME UP WITH A STRATEGY: A method for picking
your stocks;
•  Are you interested in a specific industry? Sector?
•  Don’t put all of your eggs in one basket
“Buy what you know. Stock tips are all around us. You can
spot a good stock before Wall Street does.” –Peter Lynch
STRATEGIES FOR STOCK SELECTION
1.  Go With What You Know: You see companies
growing all around you.
2.  Markets: Current and future – A project
must have customers today and even more
tomorrow or it isn’t growing.
3.  Economic Cycle: Is the economy expanding
or slowing?
4.  Avoid Obvious Risks
STRATEGIES FOR STOCK SELECTION
1.  Go With What You Know: You see companies
growing all around you.
• 
• 
• 
• 
What products do you really like?
What is popular among your friends?
Who makes it?
Do you think it will continue to be popular?
Make Sure To Do Your Homework: know what
the company does and how it’s doing
financially – look at news; their annual reports
If You Can’t Explain What The Company Does,
Then You Shouldn’t Buy It
STRATEGIES FOR STOCK SELECTION
2. Markets: Current and future – A project must
have customers today and even more tomorrow
or it isn’t growing.
•  Does almost everyone own the product the
company makes?
•  Stocks of a rapidly growing company is
more likely to increase in price.
•  What are the prospects for the company
overseas? Think McDonald’s, Starbucks.
•  Demographics also affects current and
future markets: Will a large percentage of
the population want this product? (ex.
Facebook)
STRATEGIES FOR STOCK SELECTION
3. Economic
slowing?
Cycle:
Is the economy expanding or
•  How do you think the economy is doing? Is it Growing or
slowing?
•  GROWING ECONOMY: People who want jobs , have them
•  SLOWING ECONOMY: High unemployment; Companies cut
back
•  EXPANSION: Cyclical stocks in industries like cars,
appliances, raw materials like aluminum, steel, cement,
tools & equipment offer much higher returns and growth
potential
•  Recession: stocks in DEFENSIVE industries:
medicines, food, clothing, public utilities, etc) generally
decline less than stocks in other industries.
STRATEGIES FOR STOCK SELECTION
4. Avoid Obvious Risks
•  Beware of front-page stories
•  When a stock or company gets the headline that means
everyone else knows about it too
•  You may want to stick with boring stocks
•  Evaluate Current Industry Conditions: Industries
include: transportation, automotive, food and beverage,
retail/apparel, health care, entertainment,
communication, utilities, financial and others
Do current events affect the businesses in the industry
you’d like to invest in?
Will technology innovations affect your industry?
STOCK RESEARCH: WHERE DO
YOU START?
-Company must be publicly traded
-Use the 10-K: an annual report for SEC
§  What is it?: A summary performance
report submitted every year by
publicly traded companies to the
Securities Exchange Commission
§  What Can It Tell Me?: What the
company does, the risks it faces as
well as the company’s financial
report.
§  Where To Find It?:
https://www.sec.gov/edgar/searchedgar/companysearch.html
Financial Statements
4 Basic Financial Statements
§  Balance Sheets: Shows what a company owns and
what it owes at a given point in time: look for lots of
cash;
§  Income Statements: show how much money a
company made and spent over a period of time: look
for earnings information; how well company is
controlling expenses; Compare profits to competitors
§  Cash Flow Statements: show the exchange of
money
between a company and the outside world also over a
period of time
§  Statement of
Shareholder’s Equity: shows changes in
the interests of the company’s shareholders over
time.
Financial Ratios
•  Simplify financial statement analysis
•  Can gauge company performance
over time
•  Compare the operations of
companies in the same industry
•  Look at stock price: does it match
performance?
Financial Ratios
A FEW ESSENTIAL RATIOS
§  Earnings Per Share(EPS): Get an idea of
company’s profitability.
The “bottom line” – Normally between $1 & $5; Sometimes $10
or $20; Can be negative
EPS = (Total Company Earnings) / (Shares Outstanding)
§  Price-to-Sales Ratio (P/S): P/S = (Market Cap) / Total Sales
§  Want low P/S ratio
§  Profit Margins: Gross Margin; Operating Margin & Net profit
margins: How much out of every dollar of sales a company keeps
in earnings.
Gross Margin = (Gross Profits) / Revenues
Operating Margin = (Operating Profits) / Revenues
Net Margin = (Net Profits) / Revenues
Financial Ratios
A FEW ESSENTIAL RATIOS
§  Price-to-Earnings Ratio(P/E): Use P/E to determine how much
investors are paying for company’s earning power; P/E = (Stock
Price) / EPS
§  Price/Earnings Growth Ratio (PEG):
used to determine stocks
value considering earnings growth;
P/E ratio ÷ Annual EPS Growth
Lower PEG ratio: Stock may be undervalued
STOCK SCREENERS
Use a stock screener to narrow your selection
YAHOO STOCK SCREENER
http://screener.finance.yahoo.com/stocks.html
STOCK SCREENERS
MORNINGSTAR STOCK SCREENER
http://screen.morningstar.com/StockSelector.html
STOCK SCREENERS
An Example
§  P/E = Less than 5 (Value Investor)
§  Price/Earnings Growth Ratio (PEG):
Less Than 1
§  Price-To-SalesRatio (P/S): Less Than 5
§  Earnings Per Share(EPS):
5 Year Projection: >20%
Reading Stock Tables
Ticker Symbol
A unique identifier (usually letters)
that represent a particular security on
an exchange.
Source: Yahoo Finance
Price
The current or price of the stock.
Sometimes this will be listed as “Last
Trade” to let you know the last price
the stock traded at.
Source: Yahoo Finance
Change in Price
Stock
The Reading
difference between
theTables
last trade
price and the price before that
Source: Yahoo Finance
The Exchange
You
can identify
which exchange
the
Reading
Stock
Tables
stock quote you’re viewing is trading
on
Source: Yahoo Finance
Previous Close
The price that the last share of stock
sold yesterday (or the last day of
trading) sold at.
Source: Yahoo Finance
Open
The open is the price of the first share
of stock sold today
Source: Yahoo Finance
Bid & Ask
A bid is the highest price that someone is willing to
pay for a share of a specific stock at a specific time;
the price you can sell the stock. The ask is the
opposite: it’s the lowest price that someone is willing
to sell the stock and the price
you can purchase the stock
Source: Yahoo Finance
1Y Target Estimate
An analyst’s projection of what the
price for a single share of this stock
will be one year from today
Source: Yahoo Finance
Beta
The measure
of how aStock
particular
Reading
Tables
stock’s price moves relative to the
market as a whole.
Beta = 1: means the stock’s price moves exactly with the overall market
Beta > 1: means the stock’s price is more volatile than the market
Beta < 1: means the stock’s price is less volatile than the market
Source: Yahoo Finance
Next Earnings Date:
Expected date of when the company
will release their next earnings
Source: Yahoo Finance
Day’s Range
The day’s range gives you the range
that a stock’s price has varied
throughout the course of the day
Source: Yahoo Finance
52wk Range
Reading Stock Tables
The range of prices a stock has sold
for over the course of the last year
Source: Yahoo Finance
Volume
A stock’s volume reflects the total
number of shares of that stock that
have been traded throughout a single
day
Source: Yahoo Finance
Avg Volume (3m)
The average volume over the past three months
of a stock. Knowing the average volume can
help you decide when the daily volume is
active enough for you to take notice
Source: Yahoo Finance
Market Cap
Market capitalization estimates the
total dollar value of the company
who’s stock is being traded
Source: Yahoo Finance
P/E (ttm)
The price to earnings ratio reflects the
relationship between the price per share and the
income earned per share by the company in
which the shares are held.
A higher P/E points to a more expensive stock because an
investor pays more per unit of
TTM: trailing twelve months
Source: Yahoo Finance
EPS
Earnings per share is the amount of money
that you would have earned if you
purchased a share of this stock last quarter
and sold it today
Source: Yahoo Finance
Div & Yield
The dividend is the payment the company
pays to shareholders based on its profits.
The yield is the dividend expressed as a
percentage of the price per share
Source: Yahoo Finance
Chart
Reading
Stock Tables
This is the information such as price;
volume, trade history in a chart form
Source: Yahoo Finance
BUYING STOCKS
You buy stocks through a broker: Full-service
Or Discount Brokers
Markets are open from 9:30 to 4pm
Commission: the fee you pay the broker to buy or
sell the stock
STOCK MARKET GAME
http://www.marketwatch.com/game/bpl-adult-vic-2014-2015
pssword: bpl2015
HOW TO PLACE AN ORDER
•  MARKET ORDER: You buy or sell the stock at its current price
•  LIMIT ORDER: you specify the price you will buy or sell the stock price at –
when and if the market price reaches your limit-order price, the order is
executed; Day or Good Till Cancelled
•  SELL SHORT: borrow from the the brokerage house and sells to another;
•  STOP LOSS: Protect upside; limit losses; Day or GTC
•  Buy To Cover: must buy those shares back at some point in time and return
them to the lender.
ORDER TYPES
Limit Order to Buy = at or below the market
Limit Order to Sell = at or above the market
If stock currently trading at $7.20
Ex. If you place limit order to buy at $7.49; it will execute at
$7.20
If stock currently trading at $7.69
Ex. If you place limit order to sell at $7.49;it will execute at
price higher than $7.69 or higher
Buy Stop: Order to buy stock above the current price
Sell Stop: Order to sell stock at a price lower than current
price
Good Till Cancelled: A limit order that is open until it’s
executed
CREATE A WATCHLIST
A way to keep track of stocks/securities you’re interested in
EVALUATING PERFORMANCE
Yields, Returns, Gains & Losses
YIELD: Income an investment pays divided by price
Investment Return: Money made or loss on an investment
Real Rate of Return: Subtract inflation from nominal rate of
return
Total Return: Actual rate of return. Includes interest, capital
gains, dividends and distributions
TOTAL RETURN: (CHANGE IN VALUE + INCOME)/ AMOUNT OF
MONEY INVESTED = TOTAL RATE OF RETURN
CAPITAL GAINS & LOSSES: length of time you held
investment; taxable event
WHEN TO SELL
§  Must know when to get out
§  Fundamentals change:
§  Dividend is cut
§  You reach your target price
§  What Is Your Return?
• 
• 
• 
• 
THINGS TO THINK ABOUT BEFORE NEXT CLASS:
WHAT TYPE OF INVESTOR ARE YOU?
DOES THAT MATCH WITH YOUR RISK TOLERANCE?
USE DATA TO PICK 5 STOCKS TO TRADE & EXPLAIN WHY
NEXT CLASS
DIG A LITTLE DEEPER: USE FINANCIAL STATEMENTS &
RATIOS TO FIND & COMPARE STOCKS
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offer, invitation or inducement to purchase or subscribe for securities nor shall it or any
part of it form the basis of, or be relied on in connection with, any contract or commitment
whatsoever.
This presentation does not constitute either advice or a recommendation regarding any
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THE END