MR ZIRKLE VIDEOS
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Initial Public Offering (IPO) - The IPO is the initial public offering, or the first share of the
stock.
Shareholder’s equity is their assets - liabilities.
Yield is the percent return of an asset paid over a year.
Dividend yield - Sum of last four quarterly stocks / Price of Stock * 100
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BOOK
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Stocks pay dividends and capital appreciation.
Dividends are small amounts of money given by a company if they earn profits
Capital appreciation - Refers to the increasing in the selling price of a stock.
Why stocks?
● Over time, stocks outperform any other option
● Reduces risk through diversification
● They are liquid
● The growth depends on more than just interest rates
Limited liability - The amount you can lose if a company goes broke are your shares
Stockholders can still benefit even if companies don’t pay dividends and decide to
reinvest, since they can benefit from capital appreciation.
Declaration date - The date on which the board of directors announces the size of the
dividend, the ex-dividend date (the date which you must have had the stock beforehand),
and the payment date.
Creditors get to claim money before stockholders.
Proxy - Legal agreement that allows a designated party to vote for a stockholder at the
corporation’s annual meeting
Stock split - Increasing the amount of stocks while decreasing their price
Stock repurchase - Company buys its own stock
Book value of a company on balance sheet = Assets - liabilities
Dividend yield is the amount of annual dividends divided by stock price.
Market-to-book ratio measures how highly valued a firm is. It is stock price / book value
per share.
Types of stocks:
- Blue chip stocks: Stocks issued by large, nationally-known companies with sound
financial and growth records
- Growth stocks: Common stocks issued that have exhibited sales growth well
above their industry average. Generally small
- Income stocks: Stocks issued by mature firms that pay high dividends and have
little earning
- Speculative stocks: Stocks with more variability and risk than average
- Cyclical stocks: Stocks whose average tends to move with the economy
- Defensive stocks: Stocks whose average does not tend to move with economy
and in some cases does better in downturns
- Large, Mid, Small-Cap stocks - Classifications of stocks that refer to the size of the
issuing firm, more specifically, its market value
Stock market index - A measure of the performance of a group of stocks that represent
the market or a sector of the market.
The oldest and most widely quoted stock index is the Dow Jones (DJIA). Composes of
the pieces of the 30 largest industrial firms. It is price weighted, stocks with a higher
price per share are given more weight than lower prices per share
S&P 500 - Another stock index, more broad and based upon 500 stocks. Covers 90% of
U.S. stocks.
There is also Russell 1000, Russell 2000 (1001-3000), and Wilshire 500
Bear market is characterized by falling prices. Bull is the opposite.
Price per earning - Used as a measure of relative stock value. Stocks closing price /
earnings per share. A high P / E ratio suggests an investor is high about future
prospects. The P/E ratio is an indication of how much investors are willing to pay for a
dollar of the company’s earnings
Fundamental analysis - Determining the value of a stock by focusing on dividends,
expected levels of interest, and firm’s risk.
Technical analysis - Focuses on supply and demand.
SWOT Analysis - A framework for analyzing a firm and its common stock. Look both
internally at Strengths and Weakness and Opportunities and Threats externally.
Dollar cost averaging - A strategy where periodically an investor buys a fixed dollar
amount of stock.
Lump sum investing - Investing all the money immediately
Buy-and-hold strategy - Buy a stock and hold it for a certain period of time
Dividend reinvestment plan - You can reinvest the dividends you earned from stocks
without paying any brokerage fees
Beta - How responsive a stock is to changes in the market portfolio, such as the S&P 500.
A stock that amplifies the movements has a beta greater than 1.0, and a stock that mutes
the movements has a beta less than 1.0.
Formula for calculating the value using dividend discount value:
DIVIDEND
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REQUIRED RATE OF RETURN - INTEREST GROWTH RATE