Basics of Stocks and Investing

Introduction to Stocks
Objectives
Explain What is a Stock
Explain the Types of Stocks
Explain the Classification of Common Stock
Describe the Role of Beta in Your Portfolio
List the Various Stock Screening Criteria
Explain the Types of Analysis in Stock Trading
Explain the Ratios for Valuing Firms
List the Criteria for Choosing a Broker
Explain the Common Stock Investing

Strategies
Explain the Steps of a Typical Stock Transaction
Explain How to Read Stock Quotations
Explain the Calculation of Price-to-Earnings

Ratio
(PE)
Explain
the Key Terms of Stocks and
Investments
Describe the Rights of a Stockholder
Describe the Various Investment Options
Introduction
Peter Looney works as an

executive.
For a long time, Peter has felt that

he should invest the extra amount
of money that he makes from his
job.
Introduction
He has been saving in cash form

for a long time.
However, he wants that he should

use the saved amount to invest in
something that could help him
multiply his money and help grow
his finances.
Introduction
Peter has always thought of
starting a business venture to
grow his money, however, he is
greatly averse to the huge amount
of risk involved in any business
venture.
So, Peter starts asking advice from

his colleagues about what possible
investment options are available
in the market.
Introduction
George, one of Peters colleagues,
advices him to invest in stocks and
mutual funds.
Stocks are the capital raised by a

corporation through the issue of
shares entitling holders to an
ownership interest also known as
equity.
Introduction
Mutual funds are an investment
vehicle made of pool of funds
collected through a regulated
investment company from many
investors.
This pooled money is then used for

the purpose of investing in
securities such as stocks, bonds,
money market instruments and
similar assets.
Introduction
Money managers operate the
mutual funds by investing the
fund's capital and attempt to
produce capital gains and income
for the fund's investors.
George tells Peter that by

investing in stocks and mutual
funds, Peter can earn a small
share of the great profits that big
and successful organizations make
for themselves and their
shareholders.
Introduction
George tells him that although
Peter will get to enjoy a part of the
profit made by the organization,
he will be spared of the hassles of
running a business on his own,
and also will undertake a much
lesser risk than if he would have to
run a business on his own.
Therefore, although stocks and
mutual funds would help Peter to
multiply and grow his money, he
would be able to do so by taking
advantage of the stability and
experience of these fast growing
and stable organizations that have
been operating and making profits
Introduction
George also adds a word of

warning for Peter.
He tells Peter that the most

important thing that he should
keep in mind while investing in
stocks and mutual funds is that he
should determine the maximum
risk that he is willing to take.
Introduction
Peter should always make sure

that he never invests more than
his risk taking capacity.
George assures Peter that if he

takes calculated risks and invests
wisely; then stocks and mutual
funds prove to be a very lucrative
way of growing his money.
Introduction
Therefore, you can understand
that investing in stocks and
mutual funds are a great way to
multiply and grow your money by
undertaking calculated amount of
risk according to ones own risk
taking capacity.
Let us learn about stocks and

investing in detail.
Objectives

Strategies

Ratio
(PE)
Explain
Investments
What is a Stock?
Any business needs

money or capital
whenever it has to start
its operations or expand
its business operations.
Thus, in order to raise

this capital for a
business start-up or
expansion, the
corporation would offer
shares of stock for sale
to the public.
What
is
a
Stock?
By selling these shares
or stock to the public,
the company is able to
increase its finance
reserves and also get
the necessary funds to
start operations or
expand its operations.
So, any individual who

purchases a share or
stock of a company
becomes a part owner
of a portion of that
company, based upon
the number of shares
purchased compared
with the number of
shares that make up the
companys total stock
What are Stock Exchanges?

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Why Stocks should be in Your

Portfolio?
It has been found

over several
decades that, as an
asset class, common
stocks have
outperformed all
other major asset
classes.
Also, stocks deliver

strong long-term
capital gains.
They prove to be
one of the best and
most tax-efficient
Why Stocks should be in Your

Portfolio?
You should include

stocks in your
diversified portfolio
because the
individual stocks in
a diversified
portfolio can reduce
the overall risk of
your portfolio.
Dividends and
capital gains are
taxed at a lower
preferential federal
tax rate and so if tax
planning is done
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Types of Stocks
12
There are two main types of stocks that are offered by any
company such as follows:
Common
Stock
Lets look at each in detail.
Preferred
Stock
Common Stock
Common Stock is a voting stock. Hence,

any individual who has purchased the
common stock of a company is entitled
to vote for appointing the officers of the
company and its Board of Directors.
Thus, common stock is the ownership
share in publicly held company.
Common
Stock
Common stock holders have a residual

claim on a companys assets. Each
common stockholder or shareholder of a
corporation is entitled to certain rights
and obligations. Thus, each common
stockholder has the right to vote.
Moreover, if a common stockholder is not
able to vote in person, he can give a
Common Stock
Common Stock is a voting stock. Hence,

any individual who has purchased the
common stock of a company is entitled
to vote for appointing the officers of the
company and its Board of Directors.
Thus, common stock is the ownership
share in publicly held company.
Common
Stock
Common stock holders have a residual

claim on a companys assets. Each
common stockholder or shareholder of a
corporation is entitled to certain rights
and obligations. Thus, each common
stockholder has the right to vote.
Moreover, if a common stockholder is not
able to vote in person, he can give a
Preferred Stock
2
Preferred
Stock
Preferred Stock as the names

suggests has a preferential position
over common stock. Therefore,
during the payout of dividend to
share holders, it is first paid to
preferred stock owners before
common stock holders.
Preferred stock is also ownership
shares of a company.
However, it differs from common
stock because in preferred stocks,
the dividend is guaranteed and paid
before dividends on common stock
are paid. On the other hand, if
profits of the company increase, the
Preferred Stock
2
Preferred
Stock
Preferred Stock as the names

suggests has a preferential position
over common stock. Therefore,
during the payout of dividend to
share holders, it is first paid to
preferred stock owners before
common stock holders.
Preferred stock is also ownership
shares of a company.
However, it differs from common
stock because in preferred stocks,
the dividend is guaranteed and paid
before dividends on common stock
are paid. On the other hand, if
profits of the company increase, the
Key Asset Classes for Common Stocks

The following are some of the key asset classes for common
stocks:
Large
Capitalizati
on / Large
Cap Stocks
Mid
Capitalizati
on / Mid
Cap Stocks
Small
Capitalizatio
n / Small
Cap
Stocks
Key Asset Classes for Common Stocks

The following are some of the key asset classes for common
stocks:
Large Cap stocks
are stocks of
companies with
Small
market
Capitalizatio
capitalization
n / Small
Mid
(shares
Cap
outstanding times Capitalizati
Stocks
on / Mid
price) of greater
Large
Cap Stocks
Small Cap
than $10
billion.
Capitalizati
stocks are
on / Large
stocks of
Cap Stocks
Mid Cap stocks are companies
stocks of
with market
companies with
capitalization
market
of less than
capitalization of
$2 billion.
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Classification of Common Stock

Common stock can be classified as follows:
Blue-chip Stocks
Growth Stocks
Value Stocks
Income Stocks
Cyclical Stocks
Defensive Stocks
Let us look at each in detail.
Blue-chip Stocks
Blue-chip Stocks
Blue-chip Stocks:
o
Blue Chip Stock is

a stock that is
issued by a large,
stable, mature
company.
This is not a specific
list, but changes
over time.
Growth Stocks
Growth Stocks:
o
Growth Stocks
Growth Stock is
the stock that
compensates
investors primarily
through increase in
value of the shares
over time.
These are issued by
companies which
are growing faster
than average and
which generally
reinvest dividends.
They generally have
higher PE and PB
Value Stocks
Value Stocks
Value Stocks:
o
Value Stocks are

issued by
companies which
are less expensive
compared to the
market.
They generally have
lower PE and PB
ratios than the
market as a whole.
Income Stocks
Income Stocks
Income Stocks:
o
Income Stock is
the stock that
compensates
investors primarily
through the regular
payment of
dividends.
These are issued by
companies which
pay dividends
regularly.
Cyclical Stocks
Cyclical Stocks
Cyclical Stocks:
o
Cyclical Stock is
stock exhibiting
above-average
sensitivity to the
business cycle.
These are issue by
companies whose
share prices move
up and down with
the state of the
economy.
Defensive Stocks
Defensive Stocks
Defensive Stocks:
o
Defensive Stock is
a stock that is
relatively
insensitive to the
business cycle.
These are issued by
companies whose
share prices move
opposite to the
state of the
economy.
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Objectives

Strategies

Ratio
(PE)
Explain
Investments
What is Beta?
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rk
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Therefore, Beta
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the overall market.
Interpreting Beta
It is very important that

you understand how to
interpret Beta to
understand how a stock
is behaving with respect
to the movements in the
overall market.
Interpreting Beta
The following are some important points that you should bear
in mind while interpreting Beta:
If Beta = 1.0
= This means
that the stock
has the same
risk as the
market.
Therefore, a
stock with
Beta = 1 will
If Beta > 1.0 =

This means
that the stock
has more risk
than the
market.
Therefore, a
stock with
Beta > 1.0 will
If Beta < 1.0

= This means
that the stock
has less risk
than the
market.
Therefore, a
stock with
Beta < 1.0
Role of Beta in Your Portfolio
The Beta
indicator plays a
crucial role while
selecting the
stocks that will
make up your
portfolio.
Hence, when you build

a portfolio, you should
always track the beta
of your portfolio. The
Beta of your portfolio
is the weighted Beta
of each of your stocks
or funds in the
So, this weighted

Beta or the Beta
of your portfolio
will indicate and
show you how
risky your portfolio
is versus the
market.
Role of Beta in Your Portfolio
You should always

keep in mind that
a diversified
portfolio moves
with the market.
So, in a diversified
portfolio, you will
feel less effect
Hence, it is
crucial that
you should
always be
diversified in
all your
investments.
So, you
should
diversify by
buying a
broad array
of financial
assets.
You should not

only invest in
largecapitalization
stocks, but also
broaden and
deepen your
portfolio by
Understanding Leverage
1
2
3
Leverage is another important

concept while learning about stocks
and investing. Leverage is the
process of increasing your
purchasing power by borrowing
money to invest in more assets.
Therefore, it is very natural that

the Leverage increases your risk
as you invest more than your own
financial capacity by borrowing
from others.
Also, when you borrow money for

investing the rate of return on the
loan is fixed, however, there is no
fixed or guaranteed rate of return
on your investments.
Understanding Leverage
4
5
6
Therefore, Leverage magnifies

capital gains and losses.
As a ground rule, you should

always keep in mind that you
should never use leverage to
invest. Leverage is as pure and
simple as an ordinary debt.
So, if you want to invest a larger

amount, then the best thing that
you can do is saving for making
the larger investments but never
borrow money for it.
Costs of Investing in Stocks

It is crucial for you to understand that there are a few major
costs of investing in stocks.
Also, the costs of investing in stocks can be divided into the
following three major types:
Explicit Costs
Implicit Costs
Hidden Costs
Explicit Costs
Explicit Costs
Brokerage
Commission
Costs and Fees
Explicit Costs includes the costs

that are reflected in and you see
each month in your financial
statement. Therefore, Explicit
Costs include:
Custody or
Annual Fees
Explicit Costs
Explicit Costs
Brokerage
Brokerage
Commission
Costs
Commission
andand
Fees
Costs
Fees

Brokerage
Commission Costs
Costs
include:
and Fees:
Custody or
Annual Fees
Explicit Costs include the

brokerage commission costs
and fees.
Brokerage commission costs
and fees is a service charge
applied by a broker in return
for arranging the purchase or
sale of financial assets.
Explicit Costs
Explicit Costs
Brokerage
Brokerage
Commission
Costs
Commission
andand
Fees
Costs
Fees

Brokerage
Commission Costs
Costs
include:
and Fees:
Custody or
Annual Fees
Explicit Costs include the

brokerage commission costs
and fees.
Brokerage commission costs
and fees is a service charge
applied by a broker in return
for arranging the purchase or
sale of financial assets.
Explicit Costs
Explicit Costs
Brokerage
Commission
Costs and Fees

Costs include:
Custody or Annual Fees:
Custody or
or
Custody
Annual Fees
Fees
Annual
Explicit Costs include

custody or annual fees.
Custody or annual fees are
fees the brokerage house
charges to hold the stocks,
bonds, or mutual funds in
your account.
Explicit Costs
Explicit Costs
Brokerage
Commission
Costs and Fees

Costs include:
Custody or Annual Fees:
Custody or
or
Custody
Annual Fees
Fees
Annual
Explicit Costs include

custody or annual fees.
Custody or annual fees are
fees the brokerage house
charges to hold the stocks,
bonds, or mutual funds in
your account.
Implicit Costs
Implicit Costs
Capital Gains
Taxes
Short-term
Capital
Long-term Capital
Dividends
Implicit Costs are the taxes that

you pay. Hence, it is crucial that
you should take into account these
implicit costs as these are critical
costs that must be taken into
account to get the true return of
your portfolio but which are not
noted on your monthly financial
reports.
The following are some of the
Implicit Costs that you may have
to pay:
Implicit Costs
Implicit Costs
CapitalGains
Gains
Capital
Taxes
Taxes
Short-term
Capital
Long-term Capital
Dividends

reports.
The
following
some of the
Capital
Gainsare
Taxes:
to
pay:
You
may have to pay taxes on
the gains you have made by
selling financial assets.
Implicit Costs
Implicit Costs
Capital Gains
Taxes
Short-term
Capital
Short-term
Capital
Long-term Capital
Dividends

reports.
Short-term
The
followingCapital:
are some of the
You
to
pay:
the gains that you made in
selling assets owned for a period
of less than one year.
Implicit Costs
Implicit Costs
Capital Gains
Taxes
Short-term
Capital
Long-term Capital
Capital
Long-term
Dividends

reports.
Long-term
Capital:
The
following
are some of the
You
to
pay:
the gains that you made in
selling assets owned for a period
of more than one year.
Implicit Costs
Implicit Costs
Capital Gains
Taxes
Short-term
Capital
Long-term Capital
Dividends
Dividends

Dividends:
your
portfolio but which are not
You may have to pay taxes for
reports.
thefollowing
dividendsare
that
you of
receive
The
some
the
from the
companies.
Dividends
Implicit
Costs
that you
may have
are
the returns you get from the
to
pay:
company. Different countries
have different rules and policies
for taxing stock dividends,
bondsLet
andus
other
look dividends
at each inat
detail.
federal tax rate and your state
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Maintenance Fees
Inactivity Fees
Hidden Costs are the costs that

you have to bear while investing in
stocks that are not included in the
Explicit Costs and the Implicit
Costs. Some of the Hidden Costs
that you should look out for while
investing in stocks are as follows:
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads
Hidden Costs
Hidden Costs
AccountTransfer
Transfer
Account
Fees
Fees
Account
Maintenance Fees
Inactivity Fees
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Account Transfer Fees:
Account Transfer Fees are the
charges that you need to pay for
moving assets either into or out
of an existing account.
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Account
Maintenance
Maintenance Fees
Fees
Inactivity Fees
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Account Maintenance Fees:
Account Maintenance Fees are
the charges that you need to
pay for maintaining your
account.
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Maintenance Fees
Inactivity Fees
Fees
Inactivity
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Inactivity Fees:
Inactivity Fees are the charges
that you need to pay because
you did not trade or did not
perform any account activity
during a specified period.
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Maintenance Fees
Inactivity Fees
Minimum Balance
Balance
Minimum
Fees
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Minimum Balance Fees:
Minimum Balance Fees are the
charges that you need to pay
because you failed to maintain a
minimum balance in your
account.
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Maintenance Fees
Inactivity Fees
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Interest on Margin Loans:
Interest on Margin Loans is the
amount that you need to pay as
an interest on money you
borrowed to buy securities.
Hidden Costs
Hidden Costs
Account Transfer
Fees
Account
Maintenance Fees
Inactivity Fees
Minimum Balance
Fees
Interest on Margin
Loans
Sales Charges or
Loads

Sales Charges or Loads:
Sales Charges or Loads are the
sales charges that you need to
pay to the broker for helping
you purchase specific securities
such as mutual funds.
Risks in Stocks
You should always bear in mind while investing stocks that all
kinds of stocks are susceptible to a number of risks. Moreover,
the amount of risk may not be equal in all stocks. The following
are the major types of risks faced by stocks:
Interest Rate Risk
Inflation Risk
Business Risk
Financial Risk
Liquidity Risk
Political or Regulatory Risk
Exchange Rate Risk
Market Risk
Interest Rate Risk

Interest Rate Risk
Interest Rate Risk:
Interest Rate Risk is

the risk caused by the
rise or fall in interest
rates which may
result in a decline or
rise in the stocks
value.
Inflation Risk
Inflation Risk
Inflation Risk:
Inflation Risk is a
risk caused due to a
rise or fall in inflation
which will result in a
decrease or increase
in the value of the
stock.
Business Risk
Business Risk
Business Risk:
Business Risk is risk

that the share price
will fall due to
problems with the
business.
Financial Risk
Financial Risk
Financial Risk:
Financial Risk is a
risk is caused due to
any adverse effect
caused on the
financial performance
of the firm due to
ways in which the firm
raises money.
Liquidity Risk
Liquidity Risk
Liquidity Risk:
Liquidity Risk is a
risk that investors will
be unable to find a
buyer or seller for a
stock when they need
to sell or buy that
particular stock.

Political or Regulatory
Risk:
Political or
Regulatory Risk is a
risk that
unanticipated
changes in the tax or
legal environment will
have an adverse
impact on a business.
Exchange Rate Risk

Exchange Rate Risk
Exchange Rate Risk:
Exchange Rate Risk

is a risk that changes
in exchange rates will
impact the
profitability of firms
that operate and
function on a global
or international level.
Market Risk
Market Risk
Market Risk:
Market Risk is risk of

the impact on price
due to the overall
market movements.
Stock Market Sectors
When deciding to buy or sell any stock, it is

crucial that you should have thorough
knowledge about the sector of the particular
stock that you intend to buy or sell. The
performance of the overall sector in the
economy will to a greater extent affect the
stocks of the company belonging to that
particular sector.

The following are some considerations that you should keep in
mind with respect to the sector of any company:
You should always be aware of which sectors

are doing well.
You should always be aware of which sectors
are not doing well.
Keep a track of the performance history of
the various sectors to determine the high
performing
sectors.be aware of what are the
You should always
new rules and regulations that have come up
in different sectors of the economy in your
country.
Always keep abreast of the latest news and
trends with respect to the different sectors.

The given image shows the various sectors in an economy of
any country:
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Stock Screening Criteria
It is very important that you

should screen each and
every stock that you intend
to buy or sell before deciding
on a purchase or sale.
Screening the stock carefully
on certain crucial criteria will
help you make informed and
wise decision to safeguard
your money against risk as
well as losses.
Stock Screening Criteria
Ma
rke
Cap t
Price
toEarn
ing
s (P/E
)
RDatio
a
Vo ily
lum
e
Sector
52-Week
Price
Change
ch
ge a n
Ex
Di
vi
d
ds e n
The following are some of the crucial criteria that you should
screen the stock upon:
Stock Split
Stock Split is a process

through which a company
splits its own shares to
keep the price of its stock
affordable and in a buying
range.
Generally, a stock price of

$6-$100 per share is
considered affordable.
A company may decide to
split each of its shares into
a number of shares.
So, a company may split its
stock (x) for 1, which
results in the stock price
declining by the same
multiple (x).
Stock Split
For Example:
o
Assume you had 20

shares priced at $100
each or 20 * $100 =
$2,000.
If the stock split 2 for 1,

you would have 40
shares (2 * 20) and the
price would adjust to
$50 each, or 100 / 2.
Your value would be 40 *

$50 = $2,000, the same
as before
Reverse Split
stock
a
f
o
e
it
s
o
p
p
o
e
th
A Reverse Split is
split.
ompany if
c
a
y
b
t
u
o
d
ie
rr
a
c
A reverse split is
low.
o
to
is
e
c
ri
p
k
c
to
s
mpanys
oe
cth
e split to
rs
e
v
re
a
o
d
y
a
m
y
So, a compan
ding and
n
ta
ts
u
o
s
re
a
h
s
f
o
e
c
r
dunumbe
ree
th
s ck price.
ise
sto
rae
th
Real Life Example
Let us now look at a

real life example to
understand stock
splitting.
Real Life Example
Peter Smith owns

300 shares of
Globus Stock selling
at $600 per share.
At a recent Board
Meeting, Globus
management has
decided to split the
stock, in order to
make the stock
more affordable for
the average
investor.
Real Life Example

Look at the questions given below and try
answering them in context of the changing
situations
Globus.
How muchatwas
Peters investment before
the split?
Consider that Globus management
decides to split the stock three-for-one,
how many shares would Peter own after
the split?
What is the new price per share after the
split?
How much would Peters investment be
worth after the three -for-one split?
Now, lets take a look at the answers.
Real Life Example

Look
the questions
given
below and
try
Howatmuch
was Peters
investment
before
answering them inthe
context
split?of the changing
situations
atwas
Globus.
How
much
Peters investment
before
Peters investment
before the split
=
split?
300 shares xthe
$600
per share =
Consider that Globus management
$180,000.
decides to split the stock three-for-one,
Consider
that Globus
management
how
many shares
would Peter
own after
decides to splitthe
thesplit?
stock three-for-one,
many
would
Peter
own
What how
is the
new shares
price per
share
after
theafter
the split?
split?
How
Number
shares
that Peter
would be
muchof
would
Peters
investment
have
split
= 300
worthafter
afterthe
thethree-for-one
three -for-one
split?
x 3 = 900 shares.
Now, lets take a look at the answers.
Real Life Example

Whatmuch
is thewas
newPeters
price per
share after
the
How
investment
before
split?
the
split?
New
price
per sharebefore
after the
Peters
investment
thesplit
split==
$600/3
= $200.
300 shares
x $600 per share =
$180,000.
How much would Peters investment be
Consider
that
management
worth
after
theGlobus
three -for-one
split?
decides
Petersto
investment
worththree-for-one,
after the
split the stock
three
-for-one
split
= 900
shares
how
many
shares
would
Peter
ownxafter
$200 per sharethe
= $180,000.
split?
Number of shares that Peter would
Therefore, Peters investment worth
have after the three-for-one split = 300
after the three -for-one split remains
x 3 = 900 shares.
the same as his initial investment
amount.
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Analysis in Stock Trading

Before trading in stocks, various kinds of analysis is carried
out by investors, financial experts, financial institutions, etc.
to give an indication about the performance of a stock, its
volatility etc.
The following are a few key types of analysis performed on
stocks:
Fundamental Analysis
Cash Flow Analysis
Technical Analysis
The chief assumption on which Fundamental Analysis is

carried out is that the value of the stock can be
determined based on the future earnings of the company.
Financial Analysts carry out thorough research on the
background and operations of a company, the state of the
industry to which the company belongs, the global
industry and the global economy etc.
The chief assumption on which Fundamental Analysis is

carried out is that the value of the stock can be
determined based on the future earnings of the company.
Financial Analysts carry out thorough research on the
background and operations of a company, the state of the
industry to which the company belongs, the global
industry and the global economy etc.
Cash Flow Analysis

Cash Flow Analysis
The chief assumption on which Cash Flow Analysis is

carried out is that the value of a company is the
discounted value of the free cash flows to all shareholders
and to equity shareholders.
Cash flow models are built by investors to predict
expected cash flows to the equity shareholders and to the
total firm.
Cash Flow Analysis

Cash Flow Analysis
The chief assumption on which Cash Flow Analysis is

carried out is that the value of a company is the
discounted value of the free cash flows to all shareholders
and to equity shareholders.
Cash flow models are built by investors to predict
expected cash flows to the equity shareholders and to the
total firm.
Technical Analysis
Technical Analysis
The chief assumption on which Technical Analysis is

carried out is that supply and demand are the key factors
needed to understand stock prices and market trends.
Therefore, the companys value is determined in Technical
Analysis by focusing on psychological factors such as
greed and fear and also economic factors.
Technical Analysis
Technical Analysis
The chief assumption on which Technical Analysis is

carried out is that supply and demand are the key factors
needed to understand stock prices and market trends.
Therefore, the companys value is determined in Technical
Analysis by focusing on psychological factors such as
greed and fear and also economic factors.
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Ratios for Valuing Firms

There are a few key ratios that are used for valuing firms such
as follows:
Price-to-Earnings Ratio (PE)

Price-to-Book Ratio (PB)
Return on Equity (ROE)
Dividend Payout Ratio

The Price-to-Earnings
Ratio (PE) is defined as
the market price of the
stock divided by the
Earnings-per-Share
(EPS). This basically
means it is what you
would pay for $1 of
earnings.
The PE Ratios is one of

the most widely used
ratios. It is chiefly used
to compare financial
performance of different

The Price-to-Earnings
Ratio (PE) is defined as
the market price of the
Earnings-per-Share
(EPS). This basically
means it is what you
would pay for $1 of
earnings.
The PE Ratios is one of

the most widely used
ratios. It is chiefly used
to compare financial
performance of different

The Price to Book Ratio

(PB) is defined as the
price of the companys
book value per share.
The PB ratio basically

indicates the price you
are paying for a $1
worth of assets as
shown on the balance
sheet.

The Price to Book Ratio

(PB) is defined as the
price of the companys
book value per share.
The PB ratio basically

indicates the price you
are paying for a $1
worth of assets as
shown on the balance
sheet.

The Return on Equity

(ROE) is defined as a
ratio of the companys
Earnings-per-Share
(EPS) divided by the
companys book value
per share.
Thus, ROS measures

how well the company is
utilizing the assets of
the company to make
money.

The Return on Equity

(ROE) is defined as a
ratio of the companys
Earnings-per-Share
(EPS) divided by the
companys book value
per share.
Thus, ROS measures

how well the company is
utilizing the assets of
the company to make
money.

Dividend
Payout
Ratio
The
Dividend
Payout
Ratio is defined as the
ratio of dividends paid
divided by the earnings
of the company.
Also, it is also calculated

as dividends per share
divided by earnings per
share.
So, when this ratio is

high, it shows that a firm
is returning to the
shareholders a large
percentage of company

The Dividend Payout

Ratio is defined as the
ratio of dividends paid
divided by the earnings
of the company.
Also, it is also calculated

as dividends per share
divided by earnings per
share.
MCQ
Q.
Click on
the radio
button to
select the
correct
answer!
Which of the following

ratios is often seen as a
measure of future earnings
potential?
MCQ
G
Q.
Which
of the following
Go
oo
d
o
d!! T
Th
ha
att''ss seen
R
Riig
ratios is often
gh
tt!!a
has
potential?
C
Co
orrrreecctt A
An
nssw
weerr::
P
Prriiccee--tto
o--EEaarrn
niin
ng
gss R
o
Raattiio
offtteen
o ((P
n sseeeen
PE
E)) iiss
a
n
s
a
a
s
m
a
e
meaassu
eeaarrn
urree o
niin
ng
off ffu
gss p
t
po
uttu
oteen
urree
t
ntiiaall..
re to
e
h
k
c
i
Cl
e!
continu
MCQ
T
Q.
Which
of the following
Th
ha
tt''ss N
a
No
tt Q
Qu
iitte
useen
ratios is o
often
as
ah
eR
Riig
g
htt!!
potential?
P
Prriiccee--tto
o--EEaarrn
niin
ng
gss R
o
Raattiio
offtteen
o ((P
n sseeeen
PE
E)) iiss
a
n
s
a
a
s
m
a
e
meaassu
eeaarrn
urree o
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ng
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t
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oteen
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t
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continu
Types of Orders
As an investor and stock trader, you can place the following
three types of orders on your stocks:
Limit
Order
Stop
Order
Market
Order
Types of Orders
As an investor and stock trader, you can place the following
three types of orders on your stocks:
Stop Order is
an order to buy
or sell stock
holdings when
the market
price reaches a
certain level.
Limit
Order
Stop
Order
Market Order is
an offer to buy
stock at the market
price.
Market
Order
Limit Order is
a request to
buy stock at
any price up
to a specified
maximum or
to sell stock at
any price
above a
specified
minimum.
MCQ
Q. You have invested in a stock.

The stock prices go up and
have made a profit for you.
Which of the following should
you do to help you protect
your gains?
Click on
the radio
button to
select the
correct
answer!
MCQ
G
Q.
invested in a stock.
Go
o
oYou
od
d!!have
T
Th
a
h tt''ss R
g
Riigo
The stockaprices
gh
tt!! and
hup
C
o
Corrrryour
eecctt A
n
Agains?
nssw
weerr::
S
Stto
op
pO
Orrd
deerr w
wiillll h
yyo
heellp
u
p yyo
ourr sstto
ou
u tto
c
ockk h
o sseellll
o
l
h
d
o
i
n
l
d
g
i
s
n
m
g
w
a
s
marrkkeett p
heen
n tth
prriiccee rreeaach wh
he
lleevveell and
cheess cceerrtai e
and h
tain
eellp
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y
p
o
u
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o
p
g
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r
a
o
i
p
gain
rotteecctt yyo
nss..
ou
urr
re to
e
h
k
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i
Cl
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continu
MCQ
T
Q.
invested in a stock.
Th
a
hYou
att''sshave
N
No
t
otprices
Q
Qu
uiittgo
e
The stock
up
eR
iig
R
h
gand
htt!!
your gains?
S
Stto
op
pO
Orrd
deerr w
wiillll h
yyo
heellp
u
p yyo
ourr sstto
ou
u tto
c
ockk h
o sseellll
o
l
h
d
o
i
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l
d
g
i
s
n
m
g
w
a
s
h
marrkkeett p
n tth
prriiccee rreeaach wheen
hee
lleevveell and
cheess cceerrtai
and h
tain
e
n
l
h
p
e
y
l
p
o
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y
o
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p
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continu
Types of Brokers
There are various types of brokers who offer various kinds of
services for buying and selling of stocks and various securities
such as follows:
Lets look at each in detail.
Full Service Brokers


are the traditional
brokers who are
present since the start
of stock exchanges
across the world.
Such full service stock

brokers develop and
maintain personal
relationships with
clients.
Such brokers


are the traditional
brokers who are
present since the start
of stock exchanges
across the world.
Such full service stock

brokers develop and
maintain personal
relationships with
clients.
Such brokers
Discount Brokers
Discount Brokers
Discount Brokers is a
relatively new kind of
brokerage service
offering that has come
up in the brokerage
business.
The discount brokers

through the firm
execute a customers
transaction on behalf
of the client.
However, a discount
Discount Brokers
Discount Brokers
Discount Brokers is a
relatively new kind of
brokerage service
offering that has come
up in the brokerage
business.
The discount brokers

through the firm
execute a customers
transaction on behalf
of the client.
However, a discount
Electronic Trading Platforms

Electronic Trading
Platforms
Another more modern

and latest form of
trading can be done
electronically by
customers.
In such electronic
trading, the customers
can through the use of
computer on-line
services initiate their
own buy and sell
orders.
Electronic Trading Platforms

Electronic Trading
Platforms
Another more modern

and latest form of
trading can be done
electronically by
customers.
In such electronic
trading, the customers
can through the use of
computer on-line
services initiate their
own buy and sell
orders.
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Criteria for Choosing a Broker
As a new investor, it is important that you

should start investing with the help of an
experienced broker.
Hence, it is very crucial that you should

choose the right broker who can guide you to
make stock trades in a wise manner.
Criteria for Choosing a Broker
There are a few criteria that you should keep in mind

before choosing a broker. So, before you choose a
broker, keep in mind the following considerations:
The brokerage site should have a useful and informative
website and trading platform.
The trading platform and interface should be able to

allow you to trade during high-traffic trading periods.
The account should be properly insured and valid as per

local and national regulations.
Check and find detailed information about the

commission structure.
Find out detailed information about all the types of
services offered by the brokerage firm.
Find out if the brokerage firm offers any daily updates on

the stock listings, news, information and dedicated
relationship
manager
asinformation
well.
Check and find
detailed
if the broker or
brokerage firm is willing to pay you interest on any uninvested cash in your account. Also, what is the interest
Objectives

Strategies

Ratio
(PE)
Explain
Investments
Common Stock Investing Strategies

You can use a number of different strategies for investing in
stocks.
The following are a few of the most common strategies for
investing in stocks:
Buy and Hold Strategy
Dollar-cost Averaging Strategy
Dividend Reinvestment Strategy
Buy and Hold Strategy:

A Buy and Hold Strategy is the strategy of buying a
financial asset and not selling it for an extended period of
time. Hence, this is a long-term strategy. It proves to be
very cost-effective.
Buy and Hold Strategy:

A Buy and Hold Strategy is the strategy of buying a
financial asset and not selling it for an extended period of
time. Hence, this is a long-term strategy. It proves to be
very cost-effective.
Dollar-cost Averaging Strategy:

A Dollar-cost Averaging Strategy is a strategy of
purchasing a fixed dollar amount of a security at regular
intervals, such as every month.
Dollar-cost Averaging Strategy:

A Dollar-cost Averaging Strategy is a strategy of
purchasing a fixed dollar amount of a security at regular
intervals, such as every month.
Dividend Reinvestment Strategy:

A Dividend Reinvestment Strategy is a strategy where
additional shares of stock are purchased with the dividend
payments. Dividend Reinvestment Strategy is also
known as Dividend Reinvestment Plans or DRIPs.
Dividend Reinvestment Strategy:

A Dividend Reinvestment Strategy is a strategy where
additional shares of stock are purchased with the dividend
payments. Dividend Reinvestment Strategy is also
known as Dividend Reinvestment Plans or DRIPs.
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Basics of Stocks and Investing

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Introduction to Stocks

Explain What is a Stock

Explain the Types of Stocks

Explain the Classification of Common Stock

Describe the Role of Beta in Your Portfolio

List the Various Stock Screening Criteria

Explain the Types of Analysis in Stock Trading

Explain the Ratios for Valuing Firms

List the Criteria for Choosing a Broker

Explain the Common Stock Investing

Explain How to Read Stock Quotations

Explain the Calculation of Price-to-Earnings

Describe the Various Investment Options

Peter Looney works as an

For a long time, Peter has felt that

He has been saving in cash form

However, he wants that he should

So, Peter starts asking advice from

Stocks are the capital raised by a

This pooled money is then used for

George tells Peter that by

George also adds a word of

He tells Peter that the most

Peter should always make sure

George assures Peter that if he

Let us learn about stocks and

Explain What is a Stock

Explain the Types of Stocks

Explain the Classification of Common Stock

Describe the Role of Beta in Your Portfolio

List the Various Stock Screening Criteria

Explain the Types of Analysis in Stock Trading

Explain the Ratios for Valuing Firms

List the Criteria for Choosing a Broker

Explain the Common Stock Investing

Explain How to Read Stock Quotations

Explain the Calculation of Price-to-Earnings

Describe the Various Investment Options

Any business needs

Thus, in order to raise

So, any individual who

What are Stock Exchanges?

What are Stock Exchanges?

Why Stocks should be in Your

It has been found

Also, stocks deliver

Why Stocks should be in Your

You should include

Explain What is a Stock

Explain the Types of Stocks

Explain the Classification of Common Stock

Describe the Role of Beta in Your Portfolio

List the Various Stock Screening Criteria

Explain the Types of Analysis in Stock Trading

Explain the Ratios for Valuing Firms

List the Criteria for Choosing a Broker

Explain the Common Stock Investing

Explain How to Read Stock Quotations

Explain the Calculation of Price-to-Earnings

Describe the Various Investment Options

Lets look at each in detail.

Common Stock is a voting stock. Hence,

Common stock holders have a residual

Common Stock is a voting stock. Hence,