Stocks and Investment Advice

What is a stock? Mutual fund? ETF?

How do you pick the right stocks and investments?

What is a stock?• Owning a stock is being a partial owner of a

company!• Get a vote (and possibly a share of profits/dividends)

per share– Mainly – an investment

Finance.yahoo.com

Stocks and Funds – Risk/Return

• Funds– Mutual Funds– Exchange Traded Funds (ETFs)

• Stocks– Large cap– Small cap

Riskiest stocks – Small Caps• Smaller companies –

total market capitalization (worth of all shares) less than $2 billion

• More “churn” – huge growth opportunity, but also higher possibility of bankrupcy/failure

IPG Photonics

Potentially less risky stocks – Large Caps

• Large Caps – bigger companies, better known names. Over $2 billion market capitalization

• “Blue-chips”- nationally recognized, high-quality, well recognized

Reading Stock Tables (or websites)

• Pull up “how to read a stock table” in the Farrand Folder

Earnings Per Share (EPS) • Higher is better - that means the company made

more profits for each share of stock.

Price Earning Ratio (P/E)

• the most common measure of how expensive a stock is.

• Usually lower is better - that means the price of the stock has not risen out of pace with company earnings.

Dividend and Yield • Higher is better - this means that the company is

doing well enough to pay out part of its profits - to you, the share holder!

The company’s track record

• Look at a company’s history, reports, and news stories about it.– Well managed?– New markets/opportunities for growth?– Remember: obvious things are already “priced in”• Don’t buy candy companies before Halloween – unless

you know they will have an exceptionally good year (for reasons that not everybody already knows)

Strategies/Rules of Investing

• Buy Low and Sell High• Do Your Research• Check for Expert Advice• Diversify Your Portfolio• Be Lucky (remember it is gambling)

Strategies/Rules of Investing

• #1 – Buy Low and Sell High– Buy when stocks are

relatively cheap/undervalue

– Sell them when they are worth more/overvalued.

– Don’t panic and sell too cheaply or get suckered into buying when too precious

Strategies/Rules of Investing• #2 -Do Your

Research– Finance.yahoo.com– Millions of other

sites– Read the news

Strategies/Rules of Investing• #3 - Check for “expert”

advice (but always read with a grain of salt)– Ample commentary out there

on the stock market that could point out things you didn’t know

– But remember!• They could be biased – and

making money off of fooling you• Thousands or millions may be

reading the same advice – making it irrelevant.

Strategies/Rules of Investing• #4 – Diversify Your Portfolio– The market is a gamble: reduce your risk and “get

a piece” of many potential growth opportunities

August 2000 May 2013 % growth

Apple only $9000 $151,000 1678%Enron only $9000 $0 -100%Apple and Enron

$9000 $75,500 839%

SPY (exchange traded fund)

$9000 $10,000 11%

Strategies/Rules of Investing• #5 - Remember - Investing on the stock market is

gambling– You (and even your broker and mutual fund

managers) don’t really know what you are doing.– Don’t ever invest money that you can’t afford to lose

in individual stocks– Diversify to be safe– There is no “sure thing”

Best ways to diversify

• Mutual Funds and Index Funds– Huge “basket” of stocks and/or bonds – often tens

or hundreds– Actively managed and rebalanced– High fees/annual costs (~1.5% average)

• ETFs (Exchange Traded Funds)– Huge “basket” of stocks and/or bonds– passively/rarely managed or rebalanced– Low annual fees (~0.5% average; as low as 0.09%)

Work on 30a - Stock and Investment Picking Activity

• When done: makeup work or start 30b – “Wall Street Survivor”