Good Day!

DRAW A LINE SEPARATING TODAY & YESTERDAY1) Write: Date: 02/01/10, Topic: Investing2) On the next line, write “Opener #15” and then:

1) Plot your mood, reflect in 1 sent.2) Respond to the opener by writing at least 2 sentences about:Your opinions/thoughts OR/AND

Questions sparked by the clip OR/AND

Summary of the clip OR/AND

Other things going on in the news.Announcements: NoneIntro Music: Untitled

Agenda1) Book Checkout (after class)2) Investing Basics

End Goal, you will be able to…1) How to invest?

Reminder1) Pick your stocks by Monday2) Test 1 (Version 2.0) Monday 130pts: 100mc/30frq (10pts for 1st take)

Review1) Law of Demand: Price lower, buy more of it.

Price is higher, buy less of it (not about wanting, about really buying)

2) Law of Supply: Price lower, supply less of it. Price is higher, supply more of it (not about wanting, about really making+selling)

3) Price Equilibrium (PE): Most transactions possible. Competition pulls price to PE.Above PE: Surplus, Below PE: Shortage.(Does not mean anyone is happy!)

4) Investing: With inflation, money not invested loses spending power.

a) Principal: Your initial amount of moneyb) Interest: % of principal added to principalc) Real Interest: % minus inflation d) Compounding Interest: % on top of principal +

past intereste) Rule of 72: Divide 72 by % to find how long to 2x

f) Determining Rates: Risk + Time + Amountincrease Rates (this applies to loans + investments)

5) Saving Rate/Interest Rate: Banks give interest to attract money, loan that money, charge interests, skip off the difference for profit.

So saving rates and lending rates are connected(of course lending rates are higher than saving)

Debtors: Owe compounding interestMost Americans are debtors, so when

interest goes up, it hurts them because their interest terms of borrowing like on credit cards go up. They get poorer.

Investors: Earn compounding interestMost Americans fail to do this, but most

Americans are poor, don’t be most Americans. When interest goes up, they earn more. Money makes them money!

Borrowing of edu/biz also an investment!

Notes #15a, Title: “Investing” 1) ROI: Return on your investment2) Investment Philosophy:Low Profit-Certain Return

Example: CDs, Gov BondsMed Profit-Med Risk Example: Mutual Funds, Big Corp

(Blue Chip) Stocks, Big Corp BondsHigh Profit-High Risk Example: New Stocks, Junk Bonds

Work #, Title “Investment Personality”

1) Write down which investment philosophy best suites you. Explain.

High Risk/High Profit Med Risk/Med Profit Low Risk/Low Profit 2) Write down your partner’s

philosophy (include their name).

Be prepared to present.

) Savings Accounts: Chase 0.01%

a) Money Market Account: Higher interests, higher deposit required. Chase 0.75%@$25k

) Certificate of Deposits (CD): Higher interest by freezing money for set time.

Chase 1%@4 yrs

Note: These rates are extremely low, because the Federal Reserve Rate is 0%, we’ll talk about that later.

ReviewReal Interest/Real Profit Rate:Interest rate minus inflation. Shows how

much money you are really making.

Example of Bank’s Profit Model:Loan: @ 6%Savings Rate: @ 0.25% Profit Rate: 5.75%Inflation: 3%Real Profit Rate: 2.75%

Be the saver (investor) not the borrower.Though smart borrowing is an investment like

borrowing for tuition or to start/expand biz.

Saver

Bank Gives Saver Interest

Bank Charged Lender Interest

Bank Pockets the Difference

Work # “Saving Debate”1) Read the 2 sides, choose 1 side, and write

which you choose and explain why.2) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Gov should encourage low interest rates1) Low interest rates encourages spending

2) Spending increases business output, which means more jobs

PRO: Gov should encourage high interest rates1) High interest rates encourages saving

2) Saving allows ppl and biz to make big investments in the future(upgrade tech, educ, etc)

Notes #15a, Title: “Investing” ) Why do investors get interests?Companies to Raise Money to Grow their Biz:a) Bank loan: Biz give % to bank to get $ loanb) Corporate Bonds: Biz give % to get $ iou from

investors (first to be paid back in bankruptcy)c) Stocks: Biz get $ by selling shares of

ownership (share profit)d) Private Investments (venture capitalists,

private equity firms): Privately sales shares

Notes #15a, Title: “Investing” 3) Bonds: IOUs, gov+biz borrow at fixed rates +

lengths of term. Reliability Rated: AAA-D “Junk”

4) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

4) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

4) Stocks: Selling share of ownership in the biz to raise money. Buyer earns money 2 ways:

a) Sell Shares: to Someone Else at Higher Priceb) Receive Dividends: Biz divides profits

among shareholders (biz can deny dividends roll $ back in investment)

Single Share at $19.45 gives 1 / 2 bil. ownership

OfficeMax and Continental Airlines both over 90% Return in 2006.

Delphi Autoparts and Delta Airlines both lost over 80% in 2006.

5) Stocks Price: Price based on supply + demand. Demand =“perceived” company health

6) Dividend: $ of profit given per share.a) Dividend Yield: Profit % (stock price ÷ dividend)

) Capital Gains Tax: Approx 15% profit when you sell(Lower if held over 1 yr)

Work #, “Capital Gains Tax Debate”1) Read the 2 sides, choose 1 side, and write

which you choose and explain why.2) Then write down what your partner thinks

(include their name at the end).1 2 3 4 5

CON: Increase tax on capital gains1) Rich benefit most from lowering capital gains, some rich will pay less

2) Profits from companies don’t account for negative externalities created through their ops

PRO: Lower tax on capital gains1) You want to encourage ppl to invest their money

2) Investments in business let them grow, making the US economy stronger

Corporation Basics1) Private Company: Biz owned

privately. Finances are private2) Corporation/Public Comp: Biz

that shares bought/sold. Finances under gov monitoring.

3) Board of Directors (BoD): Elected by shareholders to hire CEO and set major policies

a) Share Vote: Each share equals a vote. Votes elect a BoD

4) CEO: Hired by BoD to run daily operations

5) Duty to Shareholder: Maximize profits

Work #, Title “Corporate Responsibility”HYPO: Apple Computer is manufacturing

computers in China, pollutes ground water, leading to higher rates of cancer in neighboring towns.

1) Write who your partner thinks should be held responsible for this disaster? (include name)

a) Shareholders (owners) e) Shoppersb) Board of Directors f) Governmentc) CEO g) No Oned) Company workers2) Ask partner who has the most “potential”

power to make corporations responsible?3) Ask your partner if you think corporate

responsibility currently exist at the right levels.

Brokerage Firm: Place to buy investments: stocks, mut. funds, bonds

E*Trade (www.etrade.com)$10 per TradeMinimum Starting Amount $100018 Years Old

Finding Stock Info:www.finance.yahoo.comwww.finance.google.comwww.reuters.com/financewww.money.comStock Symbol: 1-4 Letter Company Stock IDStock Market Hours:9:30am-4:00pm East (6:30am-1:00pm West)

) Stock Orders: a) Buy: Paying for new sharesb) Buying on Margin: Borrowing money from

the brokerage to buy stocks (Adv traders).c) Sell: Sell shares you currently ownd) Sell Short: Selling a stock you don’t own,

you’ll buy the stock later to pay off the brokerage (Adv traders).

e) Limit Order: Buying a stock at a price you set.

f) Stop Order: Auto sell a stock at a price you set.

7) Stock Data:Last Trade: Market price for a shareOpen Trade: Price it opened in morningDaily Range: Today’s high/low range52 Week Range: Last 12 mo. high/low range

a) Market Cap: Stock price X number of shares circulating. Sign of how big the comp is

b) Volume: Number of shares sold that dayc) Beta: How likely does it swing up/down, 1

is market average, over 1 is more volatile

d) EPS (Earnings Per Share): Net Income ÷ Shares Circulating (Higher is better, more earnings per share: how much earnings per each share of stock, not all earning always given back to shareholders, sometimes re-invested)

e) PE (Price Earnings Ratio): Stock Price ÷ EPS (Lower better, more bang for your buck: how much you are paying for $1 of comp’s current annual earnings, ROI point, if biz grow fast, ROI can be faster).

Stock Market Basic Formulas Review1) Market Cap: Calculating the Size of Companies Formula: Stock Price X Number of Shares Example:Stock Price: $200 a Share, Number of Shares: 2Market Cap=200 X 2 = 400Market Cap=$400 2) EPS: Earnings (Net Income) Per Share (Bigger Better)Formula: Net Income ÷ Number of Shares (Tip: EPS, E-Earnings go on top of the formula, S-Shares

on the bottom)Example:Net Income: $100, Number of Shares: 2EPS=100 ÷ 2 = 50EPS=50 

3) PE Ratio: Price Earnings Ratio (Lower Better)Formula: Price/EPS (Tip: PE, P-Price goes on top of the formula, EPS on the

bottom)Example:Stock Price: $200 a Share, EPS: 50PE Ratio=200 ÷ 50 = 4PE Ratio=4 Summary:So if 1 share gets you $50 of profit, but it takes you $200

to buy one share, it would take you 4 years to break even (unless the company grows, which would reduce the time); another way to see it, PE Ratio shows you how much money you are paying to get $1 of profit. In this example, I’m paying $4 for every $1 of profit.

 

Work #15a, Title “Stock Practice 1”Use a calculator, and work with a partner.

1) a) Google has 312 million shares circulating, the price of the stock is $387 what is its market cap?

b) Google made 3.690 billion in income and has 312 million shares, what is its EPS?

c) Using the stock price of $387, and EPS above, what is the PE ratio?

Work #15a, Title “Stock Practice”Use a calculator, and work with a partner.

2) a) Mattel has 393 million shares circulating, the price of the stock is $13, what is its market cap?

b) Mattel made $560 million in income and has 393 million shares, what is its EPS?

c) Using the stock price of $13, and EPS above, what is the PE ratio?

STOCK CONTEST1) Prizes for 3 highest portfolios and

1 worst portfolio (don’t aim to be worst, it’s a pity prize).

1 -20pts2 -10pts3 -5ptsLast -5ptsAnd you can cash out any money

over your $300,000 principal.

Homework: 1) Study for Monday’s Test 1 Redo2) Pick your stocks by Monday.

Workbook Check: If your name is called, drop off your workbook with Mr. Chiang (if requested, points lost if your workbook is not turned in)