The stock market

Week 7

Today is the second day (or the first if you were not here last Wednesday) for you to check how the three stocks you choose are doing. Next week, on Wednesday, you will have to hand in your table and graphs, showing the value of your shares and your total gain/loss (3 graphs in total, one per each share) Few simple tips. Spread the risk by buying shares from different industries Follow the market leaders. ie. If investment shares Examine trends and performances of the stocks

Blue

chip shares: they provide good dividend and steady growth. They are the most popular. ex. Westpac Banking Corp. Income Shares: they provide income in the form of dividend. They have high Payout ratios (Div.Yield) Ex. Westfield group. Growth shares: these companies pay low dividends and high rates of reinvestment into growing their business (opposite of income s.) Ex. Fisher & Paykel

More information on ordinary shares ...

Cyclical

shares: they follow the business cycle. Ex General Motors Defensive shares: they are immune to changes, they often have low PE ratios (opposite of cyclical s.) Ex. Woolworth Speculative shares: they are usually of small companies, often newly formed. They are high risk inv., due to lack of financial strenght. Value shares: they look cheap, having low PE ratios and high dividend yield. (they could be defensive or income shares)

Quality

shares They can be found in any of the above categories. They have the following characteristics: Great management, solid business and finances, track record of growth in profits and dividends.

Last, but not least...

The

TSR chart uses share price and dividends to calculate the TSR (total shareholder return) profile and presents it in an easy-to-use chart. The TSR is the increase in value per share, plus dividends per share paid over the selected period expressed in percentage terms.

More share performance indicators... TSR

Net Tangible Assets per Share

Book Value per Share

Price/

Share price /Net Tangible assets

Price/NTA

It relates the stockholder's equity Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two value's may be close to equal.

BV Share price / Assets (tangible and intangible such as goodwill, patents,...)

 Have

a look at the Top 150 companies handout, from the SMH of the 14/05/2010. Pick a company Analyse its performance data writing in your notebook every percentage/ratio and its significance Compare the performance of this company with those of any other two companies on the same table. What are the major differences between their ratios and percentages? What does it tell you about the companies?

All this...in practice!

Study

paragraphs 5.2.1, 5.2.2 questions 5.4, 5.5, 5.8, page 142

Answer

Homework

Bonus

shares : opportunity for shareholders to share the capital growth of the company. for the company to raise capital by offering extra shares to existing shareholders

Rights:

More on shares

 Options:

Call option: it gives the right to buy at a certain price and time Put option: it gives the investor the right to sell at a certain price and time Debentures: they are loans to companies. They have fixed rate and are low risk investments Bonds: fixed interest securities issued by the federal or state government. There are also semi-government bonds for companies such as Telstra What advantages do debentures and bonds have? Any disadvantages?