021711 econ investing 50m

DRAW A LINE SEPARATING TODAY & YESTERDAY1) Write: Date: 02/17/11, Topic: Investing2) Next line, write “Opener #24” and then:

1) Write 1 high+1 low in last 24 hours2) Rate your understanding of yesterday: lost<1-5>too easy (3 is perfect)

3) Respond to the Opening Clip by writing at least 1 sentences about:Your opinions/thoughts OR/ANDQuestions sparked by the clip OR/ANDSummary of the clip OR/ANDAnnouncements: None

Agenda1) Investing BasicsEnd Goal, you will be able to…1) How to invest?

Reminder1) Pick your stocks by Monday:http://tinyurl.com/chiangspring2011Username must have your first name and last initial2) Test 1 Tuesday

Quiz (10 Points)1) Clear desk of everything except a

writing tool2) When done, turn quiz face down.

3) Circle just the dots.

4) Quiz # 1

Review1) Law of Demand: Price lower, buy more of it.

Price is higher, buy less of it (not about wanting, about really buying)

2) Law of Supply: Price lower, supply less of it. Price is higher, supply more of it (not about wanting, about really making+selling)

3) Price Equilibrium (PE): Most transactions possible. Competition pulls price to PE.Above PE: Surplus, Below PE: Shortage.(Does not mean anyone is happy!)

4) Investing: With inflation, money not invested loses spending power.

a) Principal: Your initial amount of moneyb) Interest: % of principal added to principalc) Real Interest: % minus inflation d) Compounding Interest: % on top of principal +

past intereste) Rule of 72: Divide 72 by % to find how long to 2x

f) Determining Rates: Risk + Time + Amountincrease Rates (this applies to loans + investments)

5) Saving Rate/Interest Rate: Banks give interest to attract money, loan that money, charge interests, skip off the difference for profit.

So saving rates and lending rates are connected(of course lending rates are higher than saving)

Debtors: Owe compounding interestMost Americans are debtors, so when

interest goes up, it hurts them because their interest terms of borrowing like on credit cards go up. They get poorer.

Investors: Earn compounding interestMost Americans fail to do this, but most

Americans are poor, don’t be most Americans. When interest goes up, they earn more. Money makes them money!

Borrowing of edu/biz also an investment!

Notes #22a, Title: “Investing” 1) ROI: Return on your investment2) Investment Philosophy:Low Profit-Certain Return

Example: CDs, Gov BondsMed Profit-Med Risk Example: Mutual Funds, Big Corp

(Blue Chip) Stocks, Big Corp BondsHigh Profit-High Risk Example: (Risky Comps) Stocks,

Junk Bonds

Journ #22a, Title “Investment Personality”

1) Write down which investment philosophy best suites you. Explain.

High Risk/High Profit Med Risk/Med Profit Low Risk/Low Profit 2) Write down your partner’s

philosophy (include their name).

Be prepared to present.

Notes #22b, Title: “Investing” 3) Savings Accounts: Chase

0.01%a) Money Market Account: Higher

interests, higher deposit required. Chase 0.75%@$25k

4) Certificate of Deposits (CD): Higher interest by freezing money for set time.

Chase 1%@4 yrs

Note: These rates are extremely low, because the Federal Reserve Rate is 0%, we’ll talk about that later.

Be the saver (investor) not the borrower.Though smart borrowing is an investment like

borrowing for tuition or to start/expand biz.

Saver

Bank Gives Saver Interest

Bank Charged Lender Interest

Bank Pockets the Difference

ReviewReal Interest/Real Profit Rate:Interest rate minus inflation. Shows how

much money you are really making.

Example of Bank’s Profit Model:Loan: @ 6%Savings Rate: @ 0.25% Profit Rate: 5.75%Inflation: 3%Real Profit Rate: 2.75%

Journ #22b “Saving Debate”1) Read the 2 sides, choose 1 side, and write

which you choose and explain why.2) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Gov should encourage low interest rates1) Low interest rates encourages spending

2) Spending increases business output, which means more jobs

PRO: Gov should encourage high interest rates1) High interest rates encourages saving

2) Saving allows ppl and biz to make big investments in the future(upgrade tech, educ, etc)

Notes #22c, Title: “Investing” 5) Why do investors get interests?Companies to Raise Money to Grow their Biz:a) Bank loan: Biz give % to bank to get $ loanb) Corporate Bonds: Biz give % to get $ iou from

investors (first to be paid back in bankruptcy)c) Stocks: Biz get $ by selling shares of

ownership (share profit, nothing in bankruptcy)d) Private Investments (venture capitalists,

private equity firms): Privately sells of shares

Notes #22c, Title: “Investing” 6) Bonds: IOUs, gov+biz borrow at fixed rates +

lengths of term. Reliability Rated: AAA-D “Junk”

7) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

7) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

7) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

7) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

Single Share at $19.45 gives 1 / 2 bil. ownership

OfficeMax and Continental Airlines both over 90% Return in 2206.

Delphi Autoparts and Delta Airlines both lost over 80% in 2206.

Journ #24a, “Bonds vs Stocks Tax Debate”1) Read the 2 sides, choose 1 side, and write

which you choose and explain why.2) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Buy Stocks1) You can potentially get more, far more than bonds in the same company

2) You are an owner, which means shareholder votes, rights over profits

PRO: Buy Bonds1) You’re promised a fixed rate of return at a fixed date in time

2) You are paid back first if the company goes under

Journ #24a, “Bonds vs Stocks Tax Debate”3) Read the 2 sides, choose 1 side, and write

which you choose and explain why.4) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Biz: Sell Stocks1) You don’t have to pay anyone back, you just give up some control (and future profits)

2) You can raise a lot more, but takes longer to initiate a public offering (IPO)

PRO: Biz: Sell Bonds1) You are not losing any ownership in your company

2) You can raise this faster

Notes #24a, Title: “Investing” 1) Stocks Price: Price based on supply + demand. Demand =“perceived” company health

2) Dividend: $ of profit given per share.a) Dividend Yield: Profit % (stock price ÷ dividend)

3) Capital Gains Tax: Approx 22% of profit when you sell(Lower if held over 1 yr)

Journ #24b, “Capital Gains Tax Debate”1) Read the 2 sides, choose 1 side, and write

which you choose and explain why.2) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Increase tax on capital gains1) Rich benefit most from lowering capital gains, some rich will pay less

2) Profits from companies don’t account for negative externalities created through their ops

PRO: Lower tax on capital gains1) You want to encourage ppl to invest their money

2) Investments in business let them grow, making the US economy stronger

Notes #24b, Title: “Investing” 4) Private Company: Biz owned

privately. Finances are private5) Corporation/Public Comp: Biz

that shares bought/sold. Finances under gov monitoring

6) Board of Directors (BoD): Elected by shareholders to hire CEO and set major policies

a) Share Vote: Each share equals a vote. Votes elect a BoD

7) CEO: Hired by BoD to run daily operations

8) Duty to Shareholder: Maximize profits

Journ #24c, Title “Corporate Responsibility”HYPO: Apple Computer is manufacturing

computers in China, pollutes ground water, leading to higher rates of cancer in neighboring towns.

1) Write who your partner thinks should be held responsible for this disaster? (include name)

a) Shareholders (owners) e) Shoppersb) Board of Directors f) Governmentc) CEO g) No Oned) Company Workers in China2) Ask partner who has the most “potential”

power to make corporations responsible?3) Ask your partner if you think corporate

responsibility currently exist at the right levels.

Brokerage Firm: Place to buy investments: stocks, mut. funds, bonds

E*Trade (www.etrade.com)$10 per TradeMinimum Starting Amount $118 Years Old

Finding Stock Info:www.finance.yahoo.comwww.finance.google.comwww.reuters.com/financewww.money.comStock Symbol: 1-4 Letter Company Stock IDStock Market Hours:9:30am-4:00pm East (6:30am-1:00pm West)

Notes #24a, Title: “Investing” 9) Stock Orders: a) Buy: Paying for new sharesb) Buying on Margin: Borrowing money from

the brokerage to buy stocks (Adv traders)c) Sell: Sell shares you currently ownd) Sell Short: Selling a stock you don’t own,

you’ll buy the stock later to pay off the brokerage (Adv traders)

e) Limit Order: Buying a stock at a price you set

f) Stop Order: Auto sell a stock at a price you set

10) Stock Data:Last Trade: Market price for a shareOpen Trade: Price it opened in morningDaily Range: Today’s high/low range52 Week Range: Last 12 mo. high/low range

a) Market Cap: Stock price X number of shares circulating. Sign of how big the comp is

b) Volume: Number of shares sold that dayc) Beta: How likely does it swing up/down, 1

is market average, over 1 is more volatile

d) EPS (Earnings Per Share): Net Income ÷ Shares Circulating (Higher is better, more earnings per share: how much earnings per each share of stock, not all earning always given back to shareholders, sometimes re-invested)

e) PE (Price Earnings Ratio): Stock Price ÷ EPS (Lower better, more bang for your buck: how much you are paying for $1 of comp’s current annual earnings, ROI point, if biz grow fast, ROI can be faster).

Stock Market Basic Formulas Review1) Market Cap: Calculating the Size of Companies Formula: Stock Price X Number of Shares Example:Stock Price: $220 a Share, Number of Shares: 2Market Cap=220 X 2 = 400Market Cap=$400 2) EPS: Earnings (Net Income) Per Share (Bigger Better)Formula: Net Income ÷ Number of Shares (Tip: EPS, E-Earnings go on top of the formula, S-Shares

on the bottom)Example:Net Income: $100, Number of Shares: 2EPS=100 ÷ 2 = 50EPS=50 

3) PE Ratio: Price Earnings Ratio (Lower Better)Formula: Price/EPS (Tip: PE, P-Price goes on top of the formula, EPS on the

bottom)Example:Stock Price: $220 a Share, EPS: 50PE Ratio=220 ÷ 50 = 4PE Ratio=4 Summary:So if 1 share gets you $50 of profit, but it takes you $220

to buy one share, it would take you 4 years to break even (unless the company grows, which would reduce the time); another way to see it, PE Ratio shows you how much money you are paying to get $1 of profit. In this example, I’m paying $4 for every $1 of profit.

Journ #24d, Title “Stock Practice 1”Use a calculator, and work with a partner.

1) a) Google has 312 million shares circulating, the price of the stock is $387 what is its market cap?

b) Google made 3.690 billion (tip: 1 bil is 1000 mil) in income and has 312 million shares, what is its EPS?

c) Using the stock price of $387, and EPS above, what is the PE ratio?

Journ #24d, Title “Stock Practice”Use a calculator, and Journ with a partner.

2) a) Mattel has 393 million shares circulating, the price of the stock is $13, what is its market cap?

b) Mattel made $560 million in income and has 393 million shares, what is its EPS?

c) Using the stock price of $13, and EPS above, what is the PE ratio?

Journal #24e, Title “Investing Advice”

1) Copy Source Title: CBS

2…) Discuss questions on the board with a partner. Summarize your discussion (include their name at the end). Remember participation points are deducted if off task. 5 Reading/Film Qs Come From These Journal SectionsTime Bookmark: 00:00

STOCK CONTEST1) Prizes for 3 highest portfolios and

1 worst portfolio (don’t aim to be worst, it’s a pity prize).

1 -15pts2 -10pts3 -5ptsLast -5ptsAnd you can cash out any money

over your $100,000 principal, -22%.

TEST PROCEDURES1) Bubble 4 last digits

of your student ID and write your name,

period. 2) Remember to copy

“Title” from the test on to your answer sheet.

3) Write your name on the test itself, but do not write anything else on it.

4) Leave Question 1 on answer sheet blank

BEST WISHES!

TEST DEBRIEF1) Make sure your test and scantron

have been turned in. No papers, pens, pencils may be out.

2) For security reasons, your test will

be voided if any electronic devices or note taking is seen during the debrief. Thank you.

QUESTIONS ABOUT THE TEST?

HomeJourn: 1) Study for Tuesday’s Test 12) Pick your stocks by Mondayhttp://tinyurl.com/chiangspring2011Username must have your first name

and last initial

Bring laptops Thursday for 3 Participation Points!

Journbook Check: If your name is called, drop off your Journbook with Mr. Chiang (if requested, points lost if your Journbook is not turned in)