Understanding The Stock Market, Midterm

Front 1

Timeline: 1920's

Back 1

-post WWII, crazy women and partying
-no regulations (SEC - ex. CEO of Chase shorted own company)
-Fed had been est in 1915, very new
-agrarian community so only 3% of population owned stock (only 150,000 ppl total)
-1929 market crashed 85%

Front 2

Timeline: 1930's

Back 2

-FDR creates New Deal (emergency relief programs, agrarian programs, labor union support)
-New Deal created agencies still in existance like FDIC and SEC
- added to an increasingly elaborate banking system

Front 3

1940's

Back 3

WWII - in a world economy people build towards a common goal - uneventful stock market

Front 4

1950's

Back 4

-Finally market recovers 25 Years later from the crash of '29
-Eisenhauer is president
-ppl move from cities into suburbs (baby boom)
-social actions affect the market

Front 5

1960's

Back 5

-GoGo Years of stock market because suburban life ran its course
-research tech and biotech began
-individual investors started putting $$ into mkts
-vietnam/ civil rights movement created need for socially responsible investing

Front 6

1970's

Back 6

-virtual world of NASDAQ founded 1971
-Jimmy Carter prez
-high inflation
-interest rates at 18-20% (risk free, so markets declined)
-OPEC oil embargo - gas lines

Front 7

1980's

Back 7

-Reaganomics - trickle down theory - giving tax breaks to big firms and so it will trickle down to everyone down below ... worked for awhile but created the largest wealth gap in history (est. 80k salaries --> 180k)

-Government Deficit became neutral and then deficit again because of the 1987 crash (37% Decline)

Front 8

1990's

Back 8

-Clinton is president
-"Greatest Economic Expansion in the History of the US (and maybe even the world!)
-greatest wealth gap in the history of the world
-no more Cold War
-ENRON scandal

Front 9

2000's

Back 9

-George Bush, War in Iraq so gov't $$ goes there
-Wall St always prefers a republican
-9/11 directly attacks Wall St,stock market halts to figure it out
-dot com bubble burst
-Greenspan slashes interest rates to spur growth
-housing market significantly appreciates
- Mutual Funds are exploding
-401ks lead to exceptional wealth

Front 10

2007

Back 10

ABX index begins to fail
housing is a big concern

Front 11

2008

Back 11

-oil prices volatile (140/barrel summer; $37/barrel winter)
-Bear Stearns, Lehman, AIG, Fannie/Freddie collapse
-Sovereign Wealth funds inject $ into distressed funds so they have a say in the company
-Euro was a mistake? ECB doesn't help them... pound depreciates
-Bernie Madoff scandal

Front 12

IPO

Back 12

Initial Public Offering

a company wants to raise $100 mil so they have a syndicator/ underwriter take on the stock and move it out into the market where it floats from there (transactional)

Front 13

Major Indices

Back 13

DJIA = 30 Stocks, supposed to be industrials but have been updated technologically
S&P500 = 500 stocks, covers more industries
Wilshire 1000,
Russell
NASDAQ = 150 stocks

Front 14

Specialists/ Market Makers/ Derivative Dealers

Back 14

Specialists are NYSE traders working for a company specifically (IBM, etc.) on the floor using the auction rate system of NYSE

Market Makers are Goldmans etc of the world that have bids/offers and can go either way (NASDAQ traders are MMakers)

Derivative Dealers work with bid offers on the deriv. side. This is conducted outside of an exchange.

Front 15

NYSE

Back 15

Auction Rate system - bidding between company specialists and account dealers (trading for Fidelity, etc)

Front 16

NASDAQ

Back 16

spreads are wider than on NYSE because the stocks are thinly traded tech stocks, etc.

this is a virtual market maker exchange

Front 17

Parts of a Stock:

Back 17

1- Stock Symbol or Call Symbol (3 letters = NYSE, 4+ letters = NASDAQ)

2- Current Price (usually the same as the Ask price)

3- Change on the day (or previous day)

4- Bid Price (How much ppl are willing to buy it for)

5 - Ask Price (How much ppl are asking for when selling)

6 - Volume (# shares traded throughout the current day - or prev day)

Front 18

Kinds of Orders

Back 18

1- Market Order
2- Limit Order (Day and Good to Cancel)

Front 19

Market Order

Back 19

buy or sell order to be executed by the broker immediately at current market prices. As long as there are willing sellers and buyers, a market order will be filled.

Front 20

Limit Order (2 types)

Back 20

1- Day (limit for the day, expires at the end of the trading day)
2- Good To Cancel - cancelled over time if the order isn't close to mkt price at all

(can be done above current mkt or below. ppl who go below are doing market timing, people who are above are doing "momentum buying")

Front 21

Dividends

Back 21

-co pays earnings to shareholders...
-many NASDAQ companies reinvest their dividends
-when market is going up, no one cares because their stock val is going up too

Front 22

Yield

Back 22

= (Annual Dividend per share / Closing Price per share) x 100%

is related to stock price because its based on percentages so if a stock appreciates youll be paid more

Front 23

DRIPS

Back 23

Direct ReInvestment of Participating Shares

Front 24

Short Selling

Back 24

Selling something you dont have because you are betting the market is going to go down. Losses can be endless

Front 25

Borrowed Shorting

Back 25

Borrow the stock, all they want back is the shares, the fee so you want the stock to go down soon!

Front 26

Naked Shorting

Back 26

selling without borrowing the shares first - institutional only

Front 27

Uptick rule

Back 27

can only short when the price goes up a little so youre not actually driving the price down, you are just betting that the price will go down.

Front 28

Shorts VS Puts

Back 28

With short you can keep them open relatively indefinitely but with puts you need to time the market properly (hard!)

Front 29

Short Interest

Back 29

# of shares sold short on that stock

Front 30

Short Squeeze

Back 30

artificial inflation of a stock price because people need to buy it all to send it out - price goes up

Front 31

Margin

Back 31

- collateral which a buyer must put down to cover counterparty risk of borrowing $$
-Fed prevents ppl from margining more than half their accounts
-minimum margin requirement = maintainence margin requirement

Front 32

Margin Selling

Back 32

When ppl are forced to add $$ into their margin calls, sometimes they cant and are forced to sell other securities, further driving down the price of the market.

Front 33

Trading on Margin

Back 33

1- Buy to Hold - same gains
2- Buy to sell w/ market timing - doubles gains

Front 34

Margin Value

Back 34

based on percentage gain not on the net value that you gain on a house or a down pmt for a stock

Front 35

Three Types of Margin Calls

Back 35

1 -Treasury/ T Calls -
2 - Maintenence Calls-
3 - House Calls -

Front 36

P/E Ratio

Back 36

MV per share / Earnings Per Share

HIGH = volatile, needs significant growth each year to warrant high price
LOW = stable company

average P/E = 8-10 but analysts never ever step out and buy in the teens.

Front 37

Earnings Per Share

Back 37

(Net Income - Pfd. Div on Stock) / Avg. Outstanding Shares

Front 38

Dollar Cost Averaging

Back 38

Putting same amount of $ into the investment at = amts of time
Eliminates margin selling, negative equity, market timing

Front 39

Stock Split

Back 39

1 share of IBM at $100
2 for 1 split
2 shares of IBM @ $50 each

Signals when a comopany is doing well but allows for more fluctuation in the price.

Front 40

Reverse Stock Splits

Back 40

100 shares of IBM @$4 each
4:1 reverse split
25 shares of IBM @ $16 each

This is a bad sign for a company but is good because some invest firms will not invest in companies less than $5/share