The Roundup: Stock Essentials
Is it just me, or did April completely fly by? After spending the last few months organizing my parents' wedding reception, I couldn't believe it when the day finally came last Saturday! The morning/afternoon went off (mostly) without a hitch. Our photographer, Donnie Gray of Gray Area Photography were really phenomenal. Trummer's was also excellent - the wait staff and setup of the room were perfect. There was quite a nice selection of soft drinks, wine, and beer as well! I chose the fried oysters for my appetizer, the green curry chicken for my entree, and the cheese plate for my dessert. Other favorites from the morning were the hors d'oeuvres, popcorn ice cream, and tasty bread bites.
Our photos will actually be finished when we're in Greece, but they will make it to this page eventually! Until then, I've been working on my financial literacy! Here's all TD Ameritrade's Education Center had to offer on stock essentials and the like :)
Portfolio Management: Stock Essentials
Introduction to Stocks
Asset classes
Equities: owning shares in a company (e.g., ETFs, mutual funds, stocks)
Fixed income: payments are consistent and delivered in fixed intervals (e.g., bonds, treasury notes, certificates of deposit)
Derivatives: security with price that is dependent on another asset, contract between two people, commonly track other investments such as a stock index (e.g., options, futures, currencies)
Cash: high liquidity, low risk (e.g., savings, money market accounts)
Allocation: percentage of portfolio in each asset class
Diversification: varied types of individual assests within an asset class
Basic Stock Strategies
Fundamental analysis
Balance sheet: compares company's current assets to its liabilities and owners' equity
Income statements: shows company's revenues and expenses
Cash flow statements: shows how company uses cash to fund operations, make investments, and pay off debts
P/E ratio: net income / # outstanding shares = earnings per share (EPS) Price of stock / EPS = P/E ratio
Technical analysis
Trend: general direction a stock's price is moving (e.g., up, down, sideways)
Support and resistance: price levels that the stock has had trouble breaking through (could signal when to exit or enter the market)
Price patterns: build on support and resistance, allowing investors to predict more specific movements and point out more precise entry and exit signals
Technical indicators: graphical representations of chart data (e.g., moving average line from past 50 days)
Sector investing
The biggest sectors in today's economy: finance, technology, healthcare, energy, utilities
Sector investments are narrowly focused that exhibit higher volatility than market in general
Investing v trading
Investors: buy and hold stocks with the expectation that they will grow and aim to generate earnings from stock appreciation and dividends; use fundamental analysis
Traders: seeking quick, short-term gains; shorter time horizon for buying and holding stocks; use technical analysis
Understanding IPOs
IPO: initial sale of company's stock to the public
Company will solicit help of investment bank to underwrite the public offering of shares (set price that each share sells for)
Trading IPOs is high risk, high reward
Managing Risk with Stocks
Diversifying portfolio stocks
Market capitalization: company's dollar value (small, mid, large)
Industry groups: finances + technology (higher growth, more sensitive to market conditions), utilities + healthcare (lower growth, less sensitive to market conditions)
International stocks: frontier, emerging, developed
Determine risk tolerance and time horizon to decide how to allocate to stocks
Fundamental analysis helps you decide what to buy, and technical analysis helps you decide when to buy it
Position sizing
Helps determine how many shares of stocks to buy
Find acceptable risk level in a particular stock
Stop loss ($) minus purchase price ($) = risk per share ($)
Maximum risk (usually 1% of portfolio value) / risk per share = # of shares to buy
Using stop orders
Investor can set exit point for stock
Stop limit: stock price triggers order; order will fill at particular price
Stop market: stock price triggers order; order will fill at whatever price is available (may be higher or lower than trigger price)
