unit 4: investments notes
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Mr. ElsesserMr. Elsesser
Wall Street IWall Street I
Unit 4: Guidelines Unit 4: Guidelines for Investorsfor Investors
Who is making Investments? Investors:
Those who buy stocks for a safe, steady return in the form of dividends and/or capital gains.
Speculators:Those who tend to take risks with their
investments in the hope of making a big and quick return on their moneyEx. Investing in an unknown new
corporation.
1) Income Stock:1) Stocks of companies whose dividends
are relatively large and stable.
Growth Stocks: 1) Stocks of corporations that retain most
of their earnings.
1) Emerging Stocks:1) Refer to new corporation’s stocks.
4) Blue Chip Stocks:1) Stocks of corporations that have been profitable
throughout the years and that have a history of paying dividends at regular intervals.
2) They have a national reputation for quality and reliability.
3) They have the ability to operate profitably in good and bad times.
5) Cyclical Stocks:1) Stocks of corporations that tend to parallel
the cycles or swings of the economy.Ex. Housing, automobile, and airline
industries.
Economy Cyclical Stocks
Economy Cyclical Stocks
6) Defensive or Staple Stocks
1) Market value doesn’t get hurt as badly when economy goes down.Ex. Food,
pharmaceutical companies.
7) Penny Stocks: Stocks whose prices are less that $1 Considered very risky Part of OTC – can be found on pink
sheetsPink Sheets:
listing of stocks printed on pink paper and published every day.
Stock Market Psychologist – An investor who understands the
emotional highs and lows of the stock market.
Ex. Rumors, opinions, fads can all send the market up or down.
Dollar Cost Averaging – Investment strategy in which an
investor buys the same stock with the same amount of money at
regular intervals for a long period of time.
Stock Dividend:A dividend that is paid as additional
stock rather than as cash.
Stock Split:The lowering of the stock price by
issuing more shares to current shareholders.
Ex. 2 for 1
You had 1 share at $100Now, you have 2 shares at $50
Possible reason for a stock split:Lower stock price will attract more investors.
Institutional Buying: Is the purchasing of a large block of stocks
by an institution rather than by an individual investor.
Ex. Insurance companies, banks, mutual funds.
Buying and selling stocks in such large blocks can dramatically affect the price of stocks.Ex. Cause of the Oct. 1987 crash; DJIA
plunged 508 points in a matter of hours
Buying on Margin:Investor purchases stocks with
money borrowed from a broker. Up to 50% off purchase price.
Margin Account: Minimum $2,000 account opened with broker in order to buy on margin.
Used as collateral. Leverage:
Borrowing money to make money
Crash of ’29: Stock market crash
that was brought on, in part, by no set requirements for buying on margin.
Crash of ’87: Stock market crash
that was brought on, in part, by large institutional buying.