Presented by:

Ahmet Tezel
Rajneesh Sharma
Karen Hogan

 Go to www.marketwatch.com/game
 Click on the orange button that says “Join Now”
 Click on the link “Get your membership now”
 Fill out the registration form and submit it
 In order to confirm your email address, you will need to go to
your email account and open the email from Dow Jones. Click
on the link in the email to confirm your email address
 You will be taken to the login page. Enter your email address
as the username and the password you chose during
registration
 You are now at MarketWatch’s home page and have finished
registering your account

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 After registering
◦ Join the trading game: sjufac2013
◦ The password is hawkfac2013

 What is common stock?

 Residual Owners: stockholders of a firm are the
owners, who are entitled to dividend income and
a prorated share of the firm’s earnings only after
all the firm’s other obligations have been met
◦ Stocks allow investors to tailor investments to meet
individual needs and preferences
◦ Stocks may provide a steady stream of current income
through dividends
◦ Stocks may increase in value over time through
capital gains

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 Long Purchase
◦ Investor buys and holds securities
 Security – a tradable asset of any kind
◦ Buy low and sell high
◦ Make money when prices go up
 Short Selling
◦ Investor sells securities they don’t own by borrowing
securities from broker
◦ Broker lends securities owned by other investors
◦ Sell high and buy low
◦ Investors make money when stock prices
go down

 Bull Market
◦ Rising prices
◦ Investor/consumer optimism
◦ Economic growth and recovery
◦ Government stimulus
 Bear Market
◦ Falling prices
◦ Investor/consumer pessimism
◦ Economic slowdown
◦ Government restraint

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 These trades are based on the news
 You have to trade like a headline chaser
 Find two firms which are in the news
 If the news is good, buy the stock, if the news
is bad, short sell the stock
 You can find tickers for firms on
finance.yahoo.com

 http://www.bloomberg.com/markets/stocks/movers/dow/

 http://finance.yahoo.com/

 http://www.google.com/finance

 http://money.cnn.com/

 http://www.morningstar.com/

 http://www.zacks.com/

 http://blogs.reuters.com/breakingviews/category/equities

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 Bid Price
◦ A stock may have many buyers at different prices
◦ The bid price is the highest price offered by the
buyers to purchase a given security
 Ask Price
◦ A stock may have many sellers at different prices
◦ The lowest price at which a seller is willing to sell a
given security

 Market Orders
◦ Orders to buy or sell stock at current ask price
when order is placed
◦ Fastest way to fill order
 Limit Orders
◦ You set the price limit at which you are willing to
buy or sell your stock
◦ If price limits are not met, order is not filled

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 These trades are based on Peter Lynch’s
investment principle “Invest in what you
know”
 Pick two products that you like or dislike
Which firms make these products?
 If the product is good, buy the stock, if the
product is bad, short sell the stock

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 Know how to place and confirm orders
 Verify stock ticker symbols
 Use limit orders
 Check orders before submitting—you pay for typos
 Don’t get carried away
◦ Follow a strategy
◦ Don’t churn
◦ Avoid or limit margin orders
 Open accounts with two brokers
 After completion double-check orders after for
accuracy

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 Don’t hesitate to sell a losing stock
 Don’t chase performance
 Be humble and open-minded
 Review the performance of your investment
on a periodic basis
 Don’t trade too much

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 These trades are based on charts (technical
analysis)
 Pick two stocks
 Look at the their charts on stockcharts.com
or finance.yahoo.com
 If you think the pattern suggests upward
movement, buy the stock
 If the pattern suggests downward movement,
sell the stock

 Plot the performance of stocks over a

specified time period
 Examples:
◦ Barchart.com
◦ BigCharts.com
◦ Stockcharts.com

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 Blue Chip Stocks: financially strong, high-quality
stocks with a long and stable record of earnings
and dividends
◦ Companies are leaders in their industries
◦ Relatively lower risk due to financial stability
of company
◦ Popular with investing public looking for steady growth
potential, perhaps dividend income
◦ Provides shelter during unsettled markets
◦ Examples: AT&T, Chevron, Johnson & Johnson,
McDonald’s, Pfizer

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 Income Stocks: stocks with a long and sustained
record of paying higher-than-average dividends
◦ Good for investors looking for relatively safe and high
level of current income
◦ Dividends tend to increase over time (unlike interest
payments on bonds)
◦ Some companies pay high dividends because they offer
limited growth potential
◦ More subject to interest rate risk
◦ Examples: Duke Energy, Conagra Foods, Sara Lee, Altria
Group

 Growth Stocks: stocks that experience high rates

of growth in operations and earnings
◦ Have sustained rate of growth in earnings above general
market
◦ Investors expect higher price appreciation due to
increasing earnings
◦ Riskier investment because price may fall if earnings
growth cannot be maintained
◦ May include blue chip stocks as well as
speculative stocks
◦ Typically pay little or no dividends
◦ Examples: Netflix, eBay, Berkshire Hathaway, Starbucks

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 Tech Stocks: stocks representing the
technology sector of the market
◦ Range from speculative stocks of small companies
that have never shown a profit to blue chip stocks
of large companies that are growth-oriented
◦ Potential for attractive returns
◦ Considerable risk and volatility
◦ Difficult to put value on due to erratic or no
earnings
◦ Examples: Microsoft, Cisco Systems, Yahoo!,
NVIDIA, SanDisk, Electronic Arts

 Speculative Stocks: stocks that offer potential for

substantial price appreciation, usually due to
some special situation such as a new product
◦ Companies lack sustained track record of business and
financial success
◦ Earnings may be uncertain or highly unstable
◦ Potential for substantial price appreciation
◦ Stock price subject to wide swings up and down in value
◦ Examples: Facebook, Sirius XM Radio, Dreamworks
Animation, Liberty Media, NitroMed, Under Armour

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 Cyclical Stocks: stocks whose earnings and
overall market performance are closely linked to
the general state of the economy
◦ Stock price tends to move up and down with the
business cycle
◦ Tend to do well when economy is growing, especially in
early stages of economic recovery
◦ Tend to do poorly in slowing economy
◦ Best for investors willing to move in and out of market
as economy changes
◦ Examples: Alcoa, Caterpillar, Genuine Parts, Lennar,
Brunswick, Timken

 Defensive Stocks: stocks that tend to hold their

value, and even do well, when the economy starts
to falter
◦ Stock price remains stable or increases when general
economy is slowing
◦ Products are staples that people use in good times and
bad times, such as electricity, beverages, foods and
drugs
◦ Gold stocks are a form of defensive stock
◦ Best for aggressive investors looking for “parking place”
during slow economy
◦ Examples: Walmart, Checkpoint Systems, WD-40

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 One Up on Wall Street by Peter Lynch
◦ The Slow Growers
◦ The Stalwarts
◦ The Fast Growers
◦ The Cyclicals
◦ Turnarounds
◦ The Asset Plays

 Market Capitalization
◦ U.S. stock market segments based on stock market
capitalization:
◦ Small-Cap Stocks: less than $2 billion
◦ Mid-Cap Stocks: $2 billion to $10 billion
◦ Large-Cap Stocks: more than $10 billion

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 The Passive Strategy
◦ No over-under valuation, no market timing, minimize
costs
◦ Buy-and-Hold
 Investors buy high-quality stocks and hold them for
extended time periods
 Goal may be current income and/or capital gains
 Investors often add to existing stocks over time
 Very conservative approach; value-oriented
◦ Index Funds
 Efficient markets, cost efficient, tax advantage

 The Active Strategy

◦ Security selection
◦ EPS Critical
◦ Growth and Value stocks
◦ Sector rotation
 Industry momentum
◦ Market timing
 Risky. Missing 16 days in 100 years you miss 2/3 of
the cumulative returns

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 Accounting for Value by Stephen Penman
◦ One does not buy a stock, one buys a business
◦ When buying a business, know the business
◦ Price is what you pay, value is what you get
◦ Part of the risk in investing is the risk of paying too
much
◦ Understand what you know and don’t mix what you
know with speculation
◦ Beware of paying too much for growth
◦ Return to fundamentals; prices gravitate to
fundamentals (but that can take some time)

 Expectation Investing by A. Rappaport & M.J.

Mauboussin
◦ Investing is a game against other investors
◦ Try to understand the forecast that explains the
market’s valuation, in order to accept it or reject its
asking price
◦ Any disagreement is likely to lie in the growth
forecast
◦ Does the growth forecast look about right?

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 Price/Earnings (P/E) Approach
◦ Future price is based upon the appropriate P/E ratio
and forecasted EPS
◦ Simple to use and easy to understand
◦ Widely used in stock valuation

Stock price = EPS  P/E ratio

 Uses borrowed funds to purchase securities

 Your currently owned securities used as
collateral for margin loan from broker
 Margin requirements set by Federal Reserve
Board
◦ Determines the minimum amount of equity
required
◦ On $5,000 purchase with 50% margin requirement,
investor puts up $2,500 and broker will lend
remaining $2,500

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 Advantages
◦ Allows use of financial leverage
◦ Magnifies profits
 Disadvantages
◦ Magnifies losses
◦ Interest expense on margin loan
◦ Margin calls

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