© Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 1 Securities and Investment Strategies

© Prentice Hall, 2007 Excellence in Business, 3e Chapter 18 - 1

Securities Securities and Investment and Investment

StrategiesStrategies


SecuritiesSecuritiesInvestmentsInvestments

StocksStocksStocksStocks MutualMutualFundsFundsMutualMutualFundsFundsBondsBondsBondsBonds


Stock certificate

Authorized stock

Issued stock

Unissued stock

Stock split

Par value

Stocks: Important TermsStocks: Important Terms


DividendsDividendsVoting RightsVoting Rights

LimitedLimitedLiabilityLiability LiquidityLiquidity

CommonCommonStockStock


Preferred StockPreferred Stock

ConvertibleConvertiblePreferred StockPreferred Stock

ConvertibleConvertiblePreferred StockPreferred Stock

CumulativeCumulativePreferred StockPreferred Stock

CumulativeCumulativePreferred StockPreferred Stock


SecuredSecuredBondsBonds

SecuredSecuredBondsBonds

DebenturesDebenturesDebenturesDebentures

ConvertibleConvertibleBondsBonds

ConvertibleConvertibleBondsBonds

CorporateCorporateBondsBonds


Interpretation Moody’sS&P Interpretation

Highest rating AaaAAA Prime quality

Very strong capacity to pay AaAA High grade

Highest rating AaaAAA Prime quality

Strong capacity to pay; somewhat susceptible to changing business

conditionsAA Upper-medium grade

Very strong capacity to pay AaAA High grade

More susceptible than A rated bonds BaaBBB Medium grade

Strong capacity to pay; somewhat susceptible to changing conditions AA Upper-medium grade

Somewhat speculative BaBB Somewhat speculative

More susceptible than A rated bonds BaaBBB Medium grade

Speculative BB Speculative

Somewhat speculative BaBB Somewhat speculative

Vulnerable to nonpayment CaaCCC Poor standing;may be in default

Speculative BB Speculative

Highly vulnerable to nonpayment CaCC Highly speculative; often in default

Vulnerable to nonpayment CaaCCC Poor standing; may be in default

Bankruptcy petition filed or similar action taken CC Lowest rated; extremely poor chance of ever

attaining real investment standing

Highly vulnerable to nonpayment CaCC Highly speculative; often in default

Corporate Bond RatingsCorporate Bond Ratings

http://www.moodys.com/cust/default.asp

http://www2.standardandpoors.com/NASApp/cs/ContentServer?pagename=sp/Page/HomePg


U.S. Government U.S. Government Securities and Municipal Securities and Municipal

BondsBondsTreasury NotesTreasury Notes

Treasury BillsTreasury Bills

Treasury BondsTreasury Bonds

U.S. Savings BondsU.S. Savings Bonds


U.S. Government U.S. Government Securities and Municipal Securities and Municipal

BondsBondsMunicipal BondsMunicipal Bonds

General Obligation BondsGeneral Obligation Bonds

Revenue BondsRevenue Bonds

Capital GainsCapital Gains


Retirement of DebtRetirement of Debt

• Serial bonds

• Term bonds

• Sinking fund

• Callable bonds


Mutual FundsMutual Funds

Load FundsLoad FundsLoad FundsLoad Funds

Open-EndOpen-EndFundsFunds

Open-EndOpen-EndFundsFunds

No-LoadNo-LoadFundsFunds

No-LoadNo-LoadFundsFunds

Closed-EndClosed-EndFundsFunds

Closed-EndClosed-EndFundsFunds

Diversify Investments

Manage Investments

Po

ol M

on

eyS

pre

ad R

isk


Types of Mutual FundsTypes of Mutual Funds

Money-MarketMoney-Market Growth Growth BalancedBalanced IncomeIncome

GlobalGlobal Sector Sector InternationalInternational IndexIndex


Options and FuturesOptions and FuturesRight Buyer’s Belief Seller’s Belief

Buy Stock At Fixed Price Until Expiration Date

Price Of Underlying StockWill Increase

Price Of Underlying StockWill Decrease

Sell Stock At Fixed Price Until Expiration Date

Price Of Underlying StockWill Decline

Price Of Underlying StockWill Increase

Call Option

Put Option


Speculating in Speculating in CommoditiesCommodities

Agricultural ProductsAgricultural Products Raw MaterialsRaw Materials


Securities MarketSecurities Market

SecondarySecondarySecondarySecondary

SecuritiesSecuritiesExchangesExchangesSecuritiesSecuritiesExchangesExchanges

PrimaryPrimaryPrimaryPrimary

InitialInitialOfferingsOfferings

InitialInitialOfferingsOfferings


Types of Stock Types of Stock ExchangesExchanges

Auction Dealer Electronic

NYSE NASDAQ ECNs


Old WayOld Way New WayNew Way

Specialists andSpecialists andMarket MakersMarket Makers

ElectronicElectronicCommunicationsCommunicationsNetworks (ECNs)Networks (ECNs)

Buying and Selling SecuritiesBuying and Selling Securities

• Trading FloorTrading Floor

• Stock SpecialistStock Specialist

• ComputerComputer

• Market MakerMarket Maker

• ComputerComputer

• Stock BrokerStock Broker

Buying onBuying onThe NYSEThe NYSE

Buying on Buying on The NASDAQThe NASDAQ

Buying onBuying onAn ECNAn ECN


IndustryIndustrySelf-RegulationSelf-Regulation

IndustryIndustrySelf-RegulationSelf-RegulationFederal LawsFederal LawsFederal LawsFederal Laws State LawsState LawsState LawsState Laws

Discourage Price ManipulationDiscourage Price Manipulation

Maximize Information AccessMaximize Information Access

Prohibit Selective DisclosureProhibit Selective Disclosure

Promote Information AccuracyPromote Information Accuracy

SEC TradingOversight

SEC FilingRequirements

Regulation of Securities MarketsRegulation of Securities Markets


Ask These QuestionsAsk These QuestionsBefore You InvestBefore You Invest

1. Is the investment registered with the SEC?

2. Have you read the audited financial statements?

3. Is a registered broker offering the investment?

4. What’s in it for the person touting the investment?

5. Should you trust e-mail/bulletin board advice?


Ask These QuestionsAsk These QuestionsBefore You InvestBefore You Invest

6. Are you being pressured to act?

7. Does the investment promise you’ll get rich quick?

8. Does the investment match your objectives?

9. How easy would it be to sell your investment later?

10. Does the investment originate overseas?


Investment ObjectivesInvestment Objectives

Growth Income

InvestmentSafety

InvestmentLiquidity

Tax Concerns


Investment PortfolioInvestment Portfolio

Rate of Return

DiversificationAsset Allocation

DiverseIndustries

GlobalInvestments

DifferentInvestments

CashInstruments

BondsCommonStocks


Market OrderMarket Order

Limit OrderLimit Order

Day OrderDay Order

Margin TradingMargin Trading

Stop OrderStop Order

Open OrderOpen Order

Discretionary OrderDiscretionary Order

Short SellingShort Selling

Buying and Selling Buying and Selling SecuritiesSecurities


Rising Stock Rising Stock MarketMarket

Falling Stock Falling Stock MarketMarket

Analyzing Financial NewsAnalyzing Financial News


Watching Market Indexes Watching Market Indexes and Averagesand Averages

• Dow Jones Industrial Average (DJIA)Dow Jones Industrial Average (DJIA)

• Standard and Poor’s 500 (S&P 500)Standard and Poor’s 500 (S&P 500)

• Wilshire 5000Wilshire 5000

• NASDAQ Composite IndexNASDAQ Composite Index

• Nikkei 225 IndexNikkei 225 Index

• FTSE 100 IndexFTSE 100 Index


Interpreting Interpreting Financial NewsFinancial News

Stock Exchange Reports

Bond QuotationTables

Mutual FundQuotations

Documents

© Prentice Hall, 2007Excellence in Business, 3eChapter 18 - 1 Securities and Investment Strategies