Chapter_12

Stock Investing for Dummies

To make the most of your money and your choices, educate yourself on how to make stock investments confidently and intelligently . . .”

This article can be used to help reassure people who are afraid to make their first stock investment.  Specific topics in the article include

  1. The Ten Most Important Points about Stock Investing
  2. Checking Important Company Fundamentals Before Investing in a Stock
  3. Financial Measures to Consider before Investing in a Stock
  4. A Mandatory Reading List for Stock Investors
  5. Reassuring Points for Nervous Stock Investors

Information in each of the above topics is explained in a straight-forward and easy-to-understand format beginning investors can understand.  The last topic, Reassuring Points for Nervous Stock Investors is especially important for people reluctant to invest in stocks.

For more information go to http://www.dummies.com/how-to/content/stock-investing-for-dummies-cheat-sheet.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the benefits of a long-term investment program. Be sure to point out that the value of quality stocks usually increases over a long period of time–a concept stressed in the text.
  • Stress the importance of evaluating a stock before investing your money.

Discussion Questions

  1. What are the benefits of a long-term investment program that includes not only stocks, but also mutual funds, bonds, and other investment alternatives?
  2. Why are people afraid to invest in stocks?
  3. What steps can you take to overcome the fear of investing in stocks?
Categories: Chapter_12, Investments | Tags: , | Leave a comment

Plunging Crude Prices Hammer Energy Companies

“A decision by OPEC this week to maintain current levels of oil production is hammering major energy companies in the U.S. and abroad.”

This article explores the winners and losers of lower energy prices.  For consumers, lower energy and gas prices means increased discretionary funds for purchasing consumer goods including food, clothes, electronics, and presents for friends and relatives during the holiday season.  Also, both large and small retailers benefit because consumers have more money to spend.  And airlines, package delivery services, cruise lines, and other companies are spending less on fuel.

The disadvantages of lower energy and gasoline prices are already causing the stock prices of big oil companies including Chevron, ConocoPhillips, Exxon Mobil, Marathon Oil, and British Petroleum to decline.

For more information go to http://finance.yahoo.com/news/plunging-crude-prices-hammer-energy-companies-123639239–finance.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Discuss the impact of the cost of energy and gasoline on a consumer’s budget.
  • Describe alternatives uses for the savings that result from lower energy and gasoline prices.

Discussion Questions

  1. What is the current price for a gallon of gasoline? How does this compare with the cost 6 months ago?  What impact does this have on your spending patterns and your personal budget?
  2. While you are saving money at the pump, the big question may be how you plan to use the savings. Are there alternatives to spending the money on clothes, entertainment, or holiday gifts?
  3. Now that the value of energy company stocks has declined, would you invest in a company like Exxon Mobil or Chevron? Explain your answer.
Categories: Chapter 2, Chapter 6, Chapter_12, Investments, Wise Shopping | Tags: , , , | Leave a comment

The Perils of Penny Stocks

“The best way to avoid penny stock scams is to do independent research.” 

This article underscores the importance of researching penny stocks before investing.  Too often, the lure of “big” profits encourages people to invest without researching penny stocks.  Simply put, they don’t do their homework.

According to this article, a good place to obtain research information about penny stocks is the Security and Exchange Commission website (www.sec.gov).  By examining a company’s 10-K annual report, 10-Q quarterly report, and Form 8-K filings, in which companies report material events.

The article also warns investors about email promotions about penny stocks that are more hype than reality.  For example, Paul Allen, a 65-year old retiree from Boston,  received a flood of emails about a company called Vapor Hub International suggesting that shares of the e-cigarette company were about to take off.  He invested and quickly lost 80 percent of his investment.  And there are many more examples where investors–especially investors with limited funds and little experience buying and selling stock–often lose all or a large portion of their investment.

For more information go to http://www.kiplinger.com/article/investing/T052-C008-S002-the-perils-of-penny-stocks.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Remind students that there is no substitute for research when picking any stock–especially penny stocks issued by small companies without a proven track record.
  • Tell students to remember the old adage “if it sounds too good to be true, it probably isn’t true.”

Discussion Questions

  1. Most investors know the risks involved when they invest in penny stocks. Still, they invest their money.  Why do you think they choose penny stocks?
  2. Assume that you are considering an investment in Vapor Hub International. What information could be used to evaluate this penny stock?  Where would you get this information?
Categories: Chapter_12, Frauds and Scams, Investments, Stocks | Tags: , , , | Leave a comment

Brokerage Services Buying Guide

“Whether you’re a seasoned investor, a newbie, or someone retesting the waters after a scary loss, financial services companies want your business.”

In this article, Consumer Reports evaluates a number of factors that investors should consider when choosing a brokerage firm to help them achieve their financial and investment goals.  Brokerage firms were rated for customer satisfaction.  (FYI, USAA was number 1 and Scottrade and Vanguard tied for second place.)  In addition to customer satisfaction ratings, other factors discussed in this article include

  • The amount of professional advice and if there were costs or requirements for free advice.
  • A discussion of retirement plans offered by various brokerage firms.
  • Steps you should take when choosing a brokerage firm.
  • Questions you should ask when choosing a brokerage firm.
  • Sales tactics that raise a “red” flag when choosing a brokerage firm.

For more information go to http://www.consumerreports.org/cro/brokerage-services/buying-guide.htm

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Point out to students that not all brokerage firms are the same and that the information in this article can help them choose the firm that can “best” help them obtain their investment goals.
  • Because this is a lengthy article, you may want to assign this as a homework assignment with students answering the questions below.

Discussion Questions

  1. What types of advice were offered by different brokerage firms?
  2. Did the information in the article help you understand the advantages and disadvantages of retirement plans?
  3. What specific steps should you take before choosing an advisor or a brokerage firms.
  4. What were some of the “red” flags you should watch for when choosing a brokerage firm?
Categories: Chapter_11, Chapter_12, Investments, Mutual Funds, Purchasing Strategies, Stocks | Tags: , , | Leave a comment

Survey Says: Investors Are Getting Scared

“As world unrest surges and the stock market wobbles, investors have gotten nervous.”

At least three separate sentiment polls indicate stock investors are worried about the trouble in Ukraine, the Middle East violence, continuing projections for a long-overdue correction or worse in the financial markets, and frustration with Washington politics.

For example, respondents to the weekly American Association of Individual Investors survey indicated their strongest levels of pessimism in almost a year.  A survey by Investors Intelligence (which polls investor newsletter editors) indicates a drop in investor bullishness compared to the previous survey.  And, a Bank of America/Merrill Lynch survey of investment strategists indicated heavy bearishness on Wall Street.

For more information go to http://t.money.msn.com/top-stocks/survey-says-investors-are-getting-scared-1

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Reinforce the relationship between world affairs, the economy, and the financial markets.

Discussion Questions

  1. At the time of this post, the world situation is troublesome to say the least. What is the relationship between world events, the economy, and the financial markets?
  2. These three recent sentiment surveys indicate that there are more bears than bulls? How would you define a bear?  A bull?
  3. Even though the sentiment surveys indicate investors are pessimistic about the market, some analysts view the market’s bearishness as a buying opportunity. Why could pessimism in the financial markets signal a time for investors to purchase stocks or mutual funds that invest in stocks?
Categories: Chapter_11, Chapter_12, Chapter_13, Investments | Tags: , , | Leave a comment

Procter & Gamble’s Allen Lafley on Activist Investors’ Watch List

“With most of the Dow 30 companies up for the year, investors should be heartened that P&G remains in the ‘bargain bin.'”

In this article, Marc Courtenay describes the financial information investors can use to evaluate an investment in Procter & Gamble, a large global company with a worldwide customer base of 4.8 billion people.  Information in this article includes a discussion of P&G’s

  • Efforts to reduce costs by $10 billion.
  • Current stock price and future price predictions.
  • Decision to increase its dividends to stockholders.
  • Projections for earnings growth and the anticipated effect on the stock’s share value.

For more information go to  http://www.thestreet.com/story/12766334/1/procter-gambles-alan-lafley-on-activist-investors-watch-list.html

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Stress the importance of using financial information when evaluating a corporate stock for investment purposes.
  • Discuss how financial information (dividends, earnings per share, dividend payout, etc.) relate to the share value for a stock like P&G.

Discussion Questions

  1. Because P&G is a large global company with a customer base of 4.8 billion people and is a component in the Dow Jones Industrial Average, do investors still need to evaluate the company before investing in its stock?
  2. Why are financial measures like dividends, earnings per share, dividend payout, and projections for earnings growth important when evaluating a stock investment?
Categories: Chapter_12, Stocks | Tags: , , , | Leave a comment

7 Smart Investing Tips from Kiplinger Readers

7 Smart Investing Tips from Kiplinger Readers

Each of the seven tips described below can help both experienced and beginning investors improve their investment skills.

  1. Invest in what you understand. To avoid getting caught in a stock-market bubble and to remain calm during an economic downturn, you should know something about a company’s true worth.
  2. Less debt means less risk. Look closely at a company’s balance sheet to determine if a company has too much debt that could hamper the company’s growth or ability to weather an economic storm.
  3. Use dividends to diversify your stock holdings. Instead of reinvesting dividends in the same stock, take cash dividends and use the money to buy stocks in different companies in which you have few holdings.
  4. If you use funds, look under the hood. To diversify your investments, make sure your existing funds don’t own the same stocks in the same companies.
  5. The right stock can replace a bond. Look for high-yield, dividend stocks to replace all or a portion of your bond holdings.
  6. Cash isn’t trash. Cash can be used to take advantage of stock-market downturns or corrections.
  7. Patience is a virtue. Sometimes it just takes time for a stock to increase in value.

For more information go to http://kiplinger.com/printstory.php?pid=12565

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Encourage students to evaluate all potential stock or mutual fund investments.
  • Stress the importance of patience and the value of a long-term investment program.

Discussion Questions

  1. How can these seven tips improve your investment decisions?
Categories: Chapter_12, Chapter_13, Investments, Mutual Funds | Tags: , | Leave a comment

Apple and Google Show that Stock Splits Are Cool Again

Now that Apple and Google split their stock, expect the thin pool of high-priced stocks to follow suit.

Can a stock’s price be “too high?” Good question. When Google split its stock in 2014, the share price had broken through the $1,000 ceiling. After a 2-for-1 stock split, Google’s price per share dropped and left only four stocks trading for more than $1,000 a share.

Most companies split their stock to lower the share price which will “hopefully” make their stock more attractive to investors. In reality, many investors prefer to buy 100 shares of a $20 stock rather than buy 20 shares of a $100 stock. These same investors believe a stock has more potential for a dollar increase if the share price is lower rather than higher.

This article also points out a basic reason why investors don’t profit from the actual stock split. If an investor, for example, owned 100 shares of Apple stock priced at $630 on the day before the recent 7-for-1 split, the investor would own 700 shares of stock after the split, but the price drops to $90 per share. A $63,000 investment before the split is still worth $63,000 after the split.

For more information go to

http://www.dailyfinance.com/2014/04/29/apple-google-stock-splits-cool-again/

Teaching Suggestions

You may want to use the information in this blog post and the original article to:

  • Discuss why companies split their stock.
  • Explain the effect of a stock split on a company’s market capitalization. (Market capitalization = a company’s share price x the number of shares outstanding.)

Discussion Questions

1. Why do corporations split their stock?

2. Once a company’s stock does split, the price may increase or decrease in value. After the 7-for-1 stock split, what happened to the share price of Apple stock?

3. Besides “possible” increase in value caused by a stock split, what other factors account for an increase or decrease in a company’s stock price?

Categories: Chapter_12, Investments, Stocks | Tags: , , | Leave a comment

Stock Investing at Lower Risk: A Guide for Beginners

Here’s a simple breakdown of key points for investing in stocks

For the beginner, stock investing can seem like an uncharted mine field because of terms, regulations, and fear. This article provides five important pieces of information that can help students understand stocks and become better investors. Here goes:

  1. Owning stock is owning a company. As an owner, you have rights and responsibilities.
  2. Stocks grow two ways because they can increase in value and they pay dividends.
  3. Stocks rise and fall in value. Keep in mind what goes up can come down.
  4. You will pay taxes unless your stocks are held inside some type of tax deferred retirement account.
  5. Stocks can be volatile. Volatility is different than the typical rise and fall in price described above because volatility occurs when an investment has major price swings in a short period of time.

For more information go to

http://www.forbes.com/sites/mitchelltuchman/2013/08/09/stock-investing-at-lower-risk-a-guide-for-beginners/

Teaching Suggestions

You may want to use the information in this blog post and the original article to

  • Provide basic information to students who are studying stock for the first time.
  • Help students understand the process of stock investing.
  • Compare stocks with savings accounts, certificates of deposit, bonds, mutual funds, and other investment alternatives.

Discussion Questions

  1. How can you profit from a stock investment?
  2. What are the risks associated with stock investments?
  3. How can you avoid paying taxes on stock and other investment alternatives?
Categories: Chapter_12, Chapter_14, Investments, Retirement Planning | Tags: , , | Leave a comment

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