STOCKS PDF

# Stocks ## What are stocks? Stocks represent ownership shares in a company. ## Types of stocks 1. **Common Stocks:** Offer ownership - Voting rights - Dividends may vary 2. **Preferred Stocks:** - Limited voting rights - Prioritize dividends - Less volatile ## Growth vs. Valu...

# Stocks ## What are stocks? Stocks represent ownership shares in a company. ## Types of stocks 1. **Common Stocks:** Offer ownership - Voting rights - Dividends may vary 2. **Preferred Stocks:** - Limited voting rights - Prioritize dividends - Less volatile ## Growth vs. Value stocks - **Growth:** Companies expected to grow faster than market avg. - Reinvest earnings into business - Don't pay dividends to shareholders - **Value:** - Underpriced stocks - Trade at 'cover' price (relates to near earnings) - Often offer dividends - Potential for steady long-term returns. ## Blue-Chip vs Small-cap Stocks - **Blue-Chip:** - Company: Large - Stable - History of reliable performance - **Small-Cap:** - Company: Smaller - Volatile - High potential growth ## Stock Market Basics 1. **Stock Exchanges:** Platforms where stocks are traded - NYSE: New York Stock Exchange - In person / Electronic - NASDAQ: National Association of Securities Dealers Automated Quotations - Electronic 2. **Trading Mechanisms:** Bought and sold through: - Brokers - Online Platforms 3. **Market Hours:** - Prices depend on supply & demand - Most open Mon - Fri - Specific hours for some exchanges ## Valuation 1. **Definition:** Process of determining the current worth of: - Company - Asset - Investment 2. **Methods:** - **Fundamental Analysis:** Valuation based on financials - **Key Ratios:** - P/E: Price to earnings - Lower P/E may indicated undervalued stock. - EPS: Earnings per share - Measures profitability per share. - P/B: Price to book - Companies market value to book value. - Dividend yield: Annual dividends per share / stock price - Relevant for income-focused investors. - **Technical Analysis:** Examines past price trends/volumes to predict future movements. - **Key Indicators:** - Moving averages: Statistical calculations to smooth out short-term fluctuations. - MACD: Moving Average Convergence Divergence - Shows relationship between two moving averages of a stock's price - Identify changes in: strength/direction/momentum/duration - RSI: Relative Strength Index (0-100) - Measures speed & change of price movements - Helps identify: overbought/oversold conditions - >70: Overbought & <30: Oversold ## Market Indicators 1. **Definition:** Statistical or data points used to gauge the overall performance/trends/health of a market. 2. **Indicators:** - **Market Capitalization:** Total market value of a company's outstanding shares. - Large cap: $10B or more - Stable / established - Mid cap: $2B - $10B - In growth stages - Small cap: Less than $2B - Riskier but higher growth potential. - **Stock Indices:** Benchmark indicators of market performance. - Standards or ref points. - **Common Benchmarks:** - S&P 500 - Index taking the 500 largest publicly headed companies. - Represents overall market health/economic performance. - Dow Jones Industrial Average - Index of 30 Major US companies across various sectors. - Indicator of blue-chip (stable) stocks & US econ strength. - NASDAQ Composite - Index tracking all stocks listed on the NASDAQ website. - Tech & growth-oriented. - Reflects trends in tech sector. - **Economic Indicators:** Influence stock prices. - Example: - Inflation rate - Interest rates - GDP growth - Unemployment rates ## Risk & Diversification 1. **Definitions:** - **Risk:** Potential of losing an investment due to various factors: - Market volatility - Econ downturn - Company issues 2. **Diversification:** Risk management strategy that involves spreading investments across various sectors/asset types to reduce portfolio risk. ## Types of Risks - **Market Risk:** Risk of losses due to overall market downturn. - **Company-Specific Risks:** Risk due to factors affecting only a company. ## Investment Strategies 1. **Buy & Hold:** Long-term strategy. - Investors hold stocks through market fluctuations. 2. **Day Trading:** - Buying & Selling within the same day. - Capitalizes on short-term price movements. 3. **Growth & Income:** - **Growth:** Focuses on stocks expected to increase in value. - **Income:** Prioritizes stocks with regular dividend payouts for steady income.