Brooklyn Public Library Mina Ennin Black. About Me Former Merrill Lynch Financial Advisor- managed over half a billion in assets Almost 10 years experience

Brooklyn Public Library

Virtual Investing

Mina Ennin Black

About Me

• Former Merrill Lynch Financial Advisor- managed over half a billion in assets

• Almost 10 years experience in Wealth Management

• Licensed Investment Manager

• Creator of the FinancialPhytness Iphone app

• Currently teaching financial & investment management to groups, companies and organizations

• http://about.me/minablack/#• Follow me: @wealthwithmina

http://about.me/minablack/

http://about.me/minablack/

AGENDA• SAVING VS. INVESTING

• WHY INVEST

• INVESTMENT TYPES

• 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

What Do They Have In Common?

All Are InvestorsIf 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

Interest Income on Money Lent

Dividend Income

from Profits on

Businesses Owned

Capital Gains

Income

You Work For Your Money

Money that other people pay you to

“borrow” your money

Profits of a company in which you bought

an investment.

Buy an investment at one price and sell it higher

4 Ways To Make Money

Money Made By Selling

Your Time

Interest Income on Money Lent

Dividend Income

from Profits on

Businesses Owned

Capital Gains

Income

How most people make money

Example: A certificate of deposit

Your Money Works For You

Ex. You bought Apple for $195 a share. You sell it for $400 a share. The $305 difference is your capital gain.

Capital Gains Example:

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

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

Understand Your Current Situation

3 Things You Should Know:

Never Invest Money You Need

Pay off any high interest debt first

Before You Invest

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

Determine Your Objectives

Rules for Successful Investing:

Evaluate The Risk

Diversification & Asset Allocation

Rule of 72

Time Value Of Money Investme

nt Income

Stock Market

Risk Tolerance

Risk & Return

Dividend

Diversification

Asset Allocatio

n

Leverage

Equity

Compound Interest

Dollar Cost

Averaging

Rate of Return

KEY CONCEPTS & TERMS

TIME VALUE OF MONEY

A dollar today is worth more than a dollar tomorrow due to its potential to earn interest

Example

$100 received today and invested at 5% will be worth $105 in a year

You Try It:

What is the FV of

$500 invested

today at a rate of 6% in 1 year?

How to calculate: FV=PV (1+i)N

FV=Future Value; i=interest ratePV = Present Value; N = years

FV = $100(1+.05)1

How to calculate: FV=PV (1+i)N

FV = $500(1+.06)1 = $530

RULE OF 72

A simple way to determine how long it will take for an investment to double in value

Example

$100 invested at

5% will double in

14.4 years

How long will it take for $1,000 invested at

10% to double?

How to calculate: # of years to double = (72/i)I = interest rate

Answer: 7.2 years

The Stock Market

An everyday term used to talk about a place where stocks and bonds are “traded”

Companies use the stock

market as a way to raise

money

Did You Know?

Size of the

world stock

market is $36

trillion?

Mina Black

Need to insert examples

Diversification

Reducing risk by investing in different kinds of securities

Limit your risk exposure to a specific investment –

choose stocks that

are made up of different industries

A portfolio with all

technology stocks is not diversified

A portfolio: a collection of investments

INVESTMENT INCOME

Income from interest payments, dividends, capital gains collected upon the sale of a security and any other profit made through an investment

Examples

Dividends, interest and rent

It is possible to

live off your

investment income

RISK TOLERANCE

The degree of uncertainty you can handle in regard to a negative change in the value of your investment

What would you do if you woke up one day and your stock lost

half its value?

Don’t take unnecessar

y risk

Take the Risk Tolerance quiz

LEVERAGE

Using borrowed capital to increase the potential return of an investment

Example

Margin: borrowing

money from your

brokerage firm to buy securities

Margin is EXTREMELY

risky

DIVIDEND

A distribution of a portion of a company’s earnings.

Quoted in terms of

dollar amount

each share receives

Dividends can be

cash, stock or

property.

RISK & RETURN

The potential return will go up with the more risk you take on

Must know your risk tolerance

Must take on some risk to

achieve returns

COMPOUND INTEREST

Interest that is paid on both the interest and the principal of an investment

ExampleIf you got 15% interest on your $1,000 investment the first year and end up with $150 interest

Example(cont..)

If I didn’t take the

money out, the second

year I would get 15%

interest on both the

$1,000 and the $150

This is why it’s so important to let your money grow in your account

EQUITY

For us: a stock or any other security that represents an ownership interest

Examples

Apple, Google,

Facebook

There are almost 9,000

stocks in the U.S.

ASSET ALLOCATION

Balancing the risk vs. reward in your portfolio by adjusting percentages

ExampleA third of

your money in stocks, a third in

bonds and a third in

cash

Invest across

different categories

of investmen

ts

DOLLAR COST AVERAGING

Invest an equal amount of money at regular intervals

A good way to reduce

market risk

Instead of investing a

lump sum of $1,000 now,

you can invest $100 every month

for 10 months

RATE OF RETURN

The amount of revenue an investment generates over a given period of time as a percentage of the original investment amount

Example

Earlier example, the

$1,000 investment

& $150 investment

income

15% is the rate of return

Total Return: actual rate of return of an investment. Includes interest, capital gains, dividends Real Return: return on an investment adjusted for inflation

STOCKS

Stocks: Shares of ownership in a company

What Does Stock Ownership Mean?

Voting Rights

Owning shares in Apple doesn’t mean you can go help yourself to free Iphones at the Apple store.

WHY DO PEOPLE BUY STOCK?

To raise money to start a business or grow a business

To help pay for ongoing business expenses

We get income from dividends (not always!)

WHY DO COMPANIES ISSUE STOCK?

They don’t have to repay the money

The stock price could go up

2 Types of Stocks

Common Majority of stock issued

Ownership in company

Claim on profits

One vote per share

Highest return Most risk (bankruptcy)

Variable dividends Never guaranteed

Preferred 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

Income Stocks

Value

Shares of companies with the potential to generate

above-average revenues and profit growth

Pay out a relatively high percentage of their earnings

in the form of dividends

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

Foreign

Market Cap

Companies whose sales and earnings are highly sensitive to the ups and downs of the

economy

Shares of companies that provide exposure to overseas currencies

Large cap, Mid-cap, Small cap – refers to the overall value of all shares of the

company’s stock

HOW DO STOCKS TRADE?

Marketplace where brokers who represent investors meet to buy and sell securities.

Two Primary Exchanges:New York Stock ExchangeNASDAQ

On the Stock Exchange

**We use indexes and averages to track overall direction of the market

NEW YORK STOCK EXCHANGE

Founded in 1792Face-to-face trading floor

Broker to specialist to broker

Stocks traded on NYSE: GE, McDonald’s, Coke, WM

New York Stock Exchange

Floor of NYSE

“Virtual” Over-the-counter-No central location-No floor brokers-Trading done through computers-Established in 1971

Tech-heavy listings – Example: Facebook

NASDAQ

-Oldest and best known index-Index of 30 widely held stocks-All companies are major factors in their industries

Dow Jones & S&P 500

-Leading companies from all sectors of the economy

-Benchmark for majority of growth mutual funds

Dow Jones Industrial Index

Standard & Poor’s 500 index

WHERE DOES STOCK PRICE COME FROM?

Stock price isTied 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 OutstandingPay 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

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

HOW DO YOU MAKE MONEY?

Reading Stock Tables

Source: Yahoo Finance

Ticker Symbol A unique identifier (usually

letters) that represent a particular security on an

exchange.


PriceThe 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.



Change in PriceThe difference between the last trade price and the price before

that



The ExchangeYou can identify which exchange the stock quote you’re viewing

is trading on


Previous CloseThe price that the last share of

stock sold yesterday (or the last day of trading) sold at.


OpenThe open is the price of the first

share of stock sold today


Bid & AskA bid is the highest price that a principle

brokerage firm has announced it’s willing to pay for a share of a specific stock at a specific time.

The ask is the opposite: it’s the lowest price that a firm has said it’s willing to sell a particular

stock at


1Y Target EstimateAn analyst’s projection of what the price for a single share of

this stock will be one year from today



BetaThe measure of how a particular stock’s price moves relative to

the market as a whole.

Beta = 1: means the stock’s price moves exactly with the overall marketBeta > 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


Next Earnings Date: Expected date of when the

company will release their next earnings


Day’s RangeThe day’s range gives you the range that a stock’s price has

varied throughout the course of the day



52wk Range

The range of prices a stock has sold for over the course of the

last year


VolumeA stock’s volume reflects the total number of shares of that stock that have been traded

throughout a single day


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


Market Cap

Market capitalization estimates the total dollar value of the

company who’s stock is being traded


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


EPSEarnings 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


Div & YieldThe 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



Chart This is the information such as price; volume, trade history in a

chart form

Exchange Traded Funds

A security that tracks an index or a basket of assets but trades on an exchange

Usually identified by 3 call letters for the symbol

DIA SPX

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

GIVE AN EXAMPLE OF A STOCK WITH A GROWING MARKET

SELECTING STOCKS

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

5. Selecting Stocks for the Stock Market Game:


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


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)


3. Economic Cycle: Is the economy expanding or slowing?

• 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.


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 MARKET GAMEwww.marketwatch.com/game/bpl---adult-investing-2014

pssword: bpl2014

http://www.marketwatch.com/game/

BUYING STOCKS

You buy stocks through a broker

Markets are open from 9:30 to 4pm

Full service or discount broker

Commission: the fee you pay the broker to buy or sell the stock

STOCK SCREENERSUse a stock screener to narrow your selection

http://screener.finance.yahoo.com/stocks.html

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

• SELL SHORT: borrow from the the brokerage house and sells to another; Buy To Cover: must buy those shares back at some point in time and return them to the lender.

CREATE A WATCHLISTA way to keep track of stocks/securities you’re interested in

EVALUATING PERFORMANCE

Real Return & Total Return

Real Rate of Return: Subtract inflation from nominal rate of return

Total Return: Actual rate of return. Includes interest, capital gains, dividends and distributions

WHEN TO SELL

Must know when to get out

Fundamentals change:

Dividend is cut

You reach your target price

What Is Your Return?

THE END

Documents

Brooklyn Public Library Mina Ennin Black. About Me Former Merrill Lynch Financial Advisor- managed over half a billion in assets Almost 10 years experience