Você está na página 1de 48

Chapter 3

Investment
Information and
Securities
Transactions

Online Investing, Information, and


Trading
Learning Goals
1. Discuss the growth in online investing and the pros and cons of
using the Internet as an investment tool.
2. Identify major types and sources of investment information.
3. Explain the key aspects of commonly cited stock and bond
market averages and indexes.
4. Review the roles of stockbrokers, including the services they
provided, selection of stockbroker, opening an account, and
transactions basics.
5. Describe the basic types of orders, online transactions,
transaction costs, and legal aspects of investor protection.
6. Discuss roles of investment advisors and investment clubs.

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-2

Getting Started in Investment


Research
Investment Education Sites
Offer tutorials, online classes and articles
Examples: Investing Online Resource Center, Investor
Guide.com, The Motley Fool

Investments Tools
Develop financial plans, set investment goals
Screen stocks on a wide variety of characteristics
Plot charts that track the performance of investments over
time
Keep track of your investments by obtaining current stock
quotes as well as your overall portfolio value

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-3

Figure 3.1 FINRA Investment


Calculator

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-4

Figure 3.2 Zacks Stock Screener

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-5

Pros and Cons of Using


the Internet as an Investment Tool
Makes it easier for individuals to do research on
investment and to act on that research
Exercise same cautions as regular investing
Remember: there is no live broker to act as a
safety net
Be skeptical of free advice online
Know what you are buying and from whom
Watch out for frequent trading
High transaction costs
Higher taxes on short-term gains

Beware of the risks of margin trading

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-6

Types of Investment
Information
Descriptive Information factual data on
past behavior of economy, market, industry
company or given investment
Analytical Information available
current data in conjunction with projections
and recommendations about potential
investments

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-7

Figure 3.3
A Report
Containing
Descriptive
Information

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-8

Types of Investment
Information
Economic and current events
Industry and company information
Information on alternative investments
Price information
Information on personal investment
strategies

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-9

Sources of Investment Information


Economic and Current Event Information
Finance Journals: Wall Street Journal, Barron s, Investor s
Business Daily
General newspapers: The New York Times
Institutional News: Dow Jones, Bloomberg Financial
Services, AP, UPI, CNNMoney
Business Periodicals: Fortune, Forbes, Business Week,
Kiplinger s Personal Finance, Money, Smart Money, Worth
Government Publications: Economic Report of the
President, Federal Reserve Bulletin
Special Subscription Services: Kiplinger Washington Letter

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-10

Sources of Investment
Information (cont d)
Industry and Company Information
General business periodicals: Wall Street Journal, Business
Week, Forbes, Fortune
Trade publications: periodicals devoted to a specific industry
Regulation FD: requires critical company information to be
disclosed simultaneously to investment professionals and public
Company Web sites
Stockholders Reports: report published annually by publicly
held corporations
Form 10-K: annual statement filed with SEC by all companies
with publicly traded stock
Freeedgar.com: SEC-maintained website with free access to
SEC filings

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-11

Table 3.1 Online Sources for Industry


and Company Information

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-12

Table 3.2 Popular Offerings of the


Major Subscription Services

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-13

Sources of Investment
Information (cont d)
Industry and Company Information (cont d)
Comparative Data Sources: Dun & Bradstreet s Key
Business Ratios
Subscription Services: Standard & Poor s Corporation,
Mergent, Value Line Investment Survey
Brokerage Reports: research reports available to
brokerage firm s clients
Investment Letters: recommendations of experts in
securities investment

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-14

Sources of Investment
Information (cont d)
Price Information
Quotations: use ticker symbols to obtain current
price data and statistics on companies
TV sources: Bloomberg TV, CNBC, CNN Headline
News

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-15

Table 3.3 Symbols for Some WellKnown Companies

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-16

Sources of Investment
Information (cont d)
Other Online Investment Information Sources
Financial Portals: supersites on the Web that combine investing
features with other personal finance features
Bond sites: online resources for bond and interest rate
information
Mutual fund sites: online resources for mutual fund information
International sites: online resources for global investing, from
country research to foreign currency exchange
Investment discussion forums: websites where investors can
exchange opinions on stocks and investing strategies (Examples:
Motley Fool, Yahoo! Finance)

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-17

Sources of Investment
Information (cont d)
Avoiding Online Scams
Beware of stock manipulators posting false news or overly
optimistic opinions
Always know your source
Beware of pump-and-dump promoters who hype a
stock and sell out on the inflated prices
Beware of get-rich-quick promoters selling worthless
investments to nave buyers

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-18

Sources of Investment
Information (cont d)
Protect Yourself by Asking Five Key
Questions:
Is the seller licensed?
Is the investment registered?
How do the risks compare to the potential
rewards?
Do you understand the investment?
Where you can turn for help?

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-19

Understanding Market Averages


and Indexes
Reasons to use market averages and indexes

Gauge general market conditions


Compare your portfolio performance to large, diversified
portfolio
Study market cycles, trends and behaviors to forecast
future market behavior

Stock market averages and indexes measure the


general behavior of stock prices over time

Averages reflect the arithmetic average price behavior at


a given point in time
Indexes measure the current price behavior relative to a
base value set at an earlier point in time

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-20

Understanding Market Averages


and Indexes (cont d)
Dow Jones Industrial Average (DJIA)
Most popular average
Comprised of 30 high quality, diversified stocks
Tracks overall market activity
Stock makeup can change to better reflect the
broader stock market

Dow Jones Transportation Average


Comprised of 20 stocks, including railroads,
airlines, freight forwarders and mixed
transportation companies

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-21

Understanding Market
Averages and Indexes (cont d)
Dow Jones Utilities Average
Comprised of 15 public utility stocks

Standard & Poor s 500 Composite Index


Comprised of 500 stocks from major industry
sectors
More broad-based and representative of overall
market than DJIA
True index calculated from 19411943 base
period closing market values
Standard & Poor s provide seven other indexes
for tracking specific industry sectors

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-22

Understanding Market Averages


and Indexes (cont d)
NYSE Composite Index

Includes all stocks listed in NYSE

AMEX Composite Index


Includes all stocks listed on the NYSE Amex

Nasdaq Composite Index

Includes all stocks traded on the Nasdaq stock market


Often used to track technology companies behavior due
to large technology companies listed with Nasdaq

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-23

Understanding Market Averages


and Indexes (cont d)
Value Line Composite Index

Includes all stocks tracked by Value Line


Uses equal weighting to eliminate the bias of stocks with
large total market values

Wilshire 5000 Index

Includes 5,000 stocks traded on the major exchanges

Russell 1000 Index

Includes 1,000 largest companies

Russell 2000 Index

Includes 2,000 small companies

Europe/Australia/Far East (EAFE MSCI)


Tracks stocks trade on foreign exchanges

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-24

Figure 3.5 The DJIA Average Compared to the


S&P 500 Index from May 2010 to May 2012

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-25

Bond Market Indicators


Bond Yields

Total return on bond purchased at current price and held


to maturity
Interest +/ changes in bond value
Reported as annual rate of return

Dow Jones Corporate Bond Index


Calculated for utility bonds, industrial bonds and a
composite bond average

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-26

The Role of Stockbrokers


Stockbrokers
Act as intermediaries between buyers and sellers
of securities
Typically paid by commissions
Must be licensed by SEC and securities
exchanges where they place orders
Client places order, stockbroker sends order to
brokerage firms, who executes order on the
exchanges where firm owns seats

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-27

The Role of Stockbrokers


(cont d)
Brokerage Services
Primary service is to executive clients purchase and sale
transactions at the best possible price
Client s security certificates often held in street name
Street name: stock certificates issued in brokerage firm s
name, but held in trust for the client who actually owns
them
Research information is often provided on specific stocks
or economic conditions
Statements showing detailed account transactions are
provided

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-28

Types of Brokerage Firms


Full-Service Broker
Offers broad range of services and products
Provides research and investment advice
Examples: Merrill Lynch, A.G. Edwards

Premium Discount Broker


Low commissions
Limited research or investment advice
Examples: Charles Schwab

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-29

Types of Brokerage Firms (cont d)


Basic Discount Brokers
Main focus is executing trades electronically
online
No research or investment advice
Commissions are at deep-discount

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-30

Selecting a Stockbroker
Find someone who understands your investment goals
Consider the investing style and goals of your stockbroker
Be prepared to pay higher fees for advice and help from fullservice brokers
Ask for referrals from friends or business associates
Beware of churning: increasing commissions by causing
excessive trading of clients accounts

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-31

Table 3.5 Major Full-Service, Premium


Discount, and Basic Discount Brokers

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-32

Types of Brokerage Accounts


Custodial Account: brokerage account for a minor that
requires parent or guardian to handle transactions
Cash Account: brokerage account that can only make cash
transactions
Margin Account: brokerage account in which the brokerage
firms extends borrowing privileges
Wrap Account: account that shifts investment decisions to a
professional money manager and charges a flat annual fee

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-33

Basic Types of Orders


Odd-lot Orders
Orders for less than 100 shares of stock

Round-lot Orders
Orders for a 100-share unit or multiples thereof

Market Orders
Orders to buy or sell stock at best price available when order is
placed
Fastest way to fill order

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-34

Basic Types of Orders (cont d)


Limit Orders
Order to buy at or below a specified price or to sell at or
above a specified price
If price limits are not met, order is not filled

Fill-or-Kill Orders
Limit orders which is canceled if not filled immediately

Day Orders
Limit orders that expires at end of the day if not filled

Good- til-Canceled (GTC) Orders


Limit orders that remains in effect for six months unless
filled, canceled, or renewed

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-35

Basic Types of Orders (cont d)


Stop-Loss (Stop) Orders

Typically used to protect investors from stock price


declines
Suspended order is placed to sell a stock if price reaches
or falls below a specified level
Orders can be day orders or GTC orders
Once activated, becomes a market order
Can also use stop orders to buy stocks, such as to limit
risk on short sales

Stop-Limit Orders
Orders to sell stock at or better than specified price
Prevents sales at undesirable price
No sale may occur if prices continues to decline

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-36

Day Trading
Day Trader: an investor who buys and
sells stocks quickly throughout the day in
hopes of making quick profits
Highly risky, especially if used with margin
trading
High brokerage commissions due to frequent
trading

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-37

Tips for Successful Online Trades


Know how to place and confirm orders
Verify stock ticker symbols
Use limit orders
Check and recheck ordersyou pay for typos
Don t get carried away
Follow a strategy
Don t churn
Avoid or limit margin orders

Open accounts with two brokers


Double-check orders for accuracy after completion

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-38

Trading Considerations
Transaction Costs

Fixed commissions used on small trades


Negotiated commissions may be used on large trades

Securities Investor Protection Corporation (SIPC)


Protects against broker financial failure
Limits up to $500,000 for securities and $250,000 for cash
Does not guarantee against churning or bad broker advice

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-39

Trading Considerations (cont d)


Mediation
Informal, voluntary dispute resolution process
between a customer and a broker
Nonbinding if parties cannot agree

Arbitration
Formal dispute resolution process that requires
customer and broker to present arguments
before a panel
Binding arbitration requires customer to accept
arbitration panel s decisions and give up right to
sue broker
Copyright 2014 Pearson Education, Inc. All rights reserved.

3-40

Using an Investment Advisor


Advisors are required to be registered with SEC
No law or regulatory body guarantees competence

Look for advisors with experience


Look for advisors with professional designations

Chartered Financial Analyst (CFA)


Certified Investment Management Analyst (CIMA)
Chartered Investment Counselor (CIC)
Certified Financial Planner (CFP)
Chartered Financial Consultant (ChFC)
Chartered Life Underwriter (CLU)
Certified Public Accountant (CPA)

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-41

Paying an Investment Advisor


Typical professional investment advice fees
Small portfolios: annual fees between 2% and
3% of funds under management
Large portfolios: annual fees between 0.25%
and 0.75% of funds under management

Check the track record and reputation of


advisor
Expect lots of questions from good advisor
to assess your investing expertise

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-42

Investment Clubs
Investments Clubs
A legal partnership formed by investors to pool
their knowledge and money
Members make stock recommendations and
analyze stock performance
Better Investing Community assists in
organizing clubs and provides educational tools
Better Investing Community has over 200,000
investors in over 16,000 investment clubs

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-43

Chapter 3 Review
Learning Goals
1. Discuss the growth in online investing and the pros and cons of
using the Internet as an investment tool.
2. Identify major types and sources of investment information.
3. Explain the key aspects of commonly cited stock and bond
market averages and indexes.
4. Review the roles of stockbrokers, including the services they
provided, selection of stockbroker, opening an account, and
transactions basics.
5. Describe the basic types of orders, online transactions,
transaction costs, and legal aspects of investor protection.
6. Discuss roles of investment advisors and investment clubs.

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-44

Chapter 3
Additional
Chapter Art

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-45

Figure 3.4 Pages from a


Stockholders Report

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-46

Figure 3.4 Pages from a


Stockholders Report (cont.)

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-47

Table 3.4
Popular
Investment
Websites

Copyright 2014 Pearson Education, Inc. All rights reserved.

3-48