03

Stocks
A brokerage account is an account set up with a licensed firm with the intention on investing.
Stocks: Description

A stock represents shareholders equity.

Hi, I’m a stock
When you buy shares in a company, you
AKA equity AKA own company stock.
shares!
stock = equity = shares
 Stocks: Why People engage in the stock market?
Business Expansion
Investing
Pros
Pros

• Increase capital base • Can earn income from price

appreciation
• Allows use of stock as a means of
payment
vs • Possible to collect
• Establishes credibility and dividends as a shareholder
recognition

Con
Con
• Price can move against you
• Ownership is diluted • Dependent on company’s
• Process can be expensive with short-term success
growth constraints
• Increase management restrictions

The ultimate goal is to make money!

Stocks: Business Expansion And we do mean
brief…this process
can take months!

Brief overview of IPO process

The underwriter Institutions have stock

evaluates the company to inventory to offer to the
determine the offering public
price

The company seeks an
underwriter to negotiate the
sale of stock along with IPO
team of accountants, lawyers,
etc
Institutional investors buys
shares in the primary market
at a slight discount from that
will be offered in the
secondary market
The stock are publicly
available for purchase in the
secondary market, slightly
higher than that offered in
the IPO

IPO = Initial Public Offering (Primary Market)

Stocks: Investing

When you own stock, the value can increase or

decrease via price movements. Stockholders can
make money when the stock price moves beyond
the purchase price.

Some companies pay dividends from their profits to

shareholders. These payment are not guaranteed but
can be beneficial. As an investor you may reinvest your
Don’t forget, investing can
dividends or accept as income.
carry tax implications!
Stocks: How do I identify a stock?
Stock Ticker Symbol
Companies listed on exchanges are assigned several
I’m Quentin, identifiers to represent them. A ticker is sort of a short
but you can code that represents a stock.
just call me Q!
So what’s
your name? Some companies choose tickers that relates to their name
or to use as a marketing tool. For example, Etsy, Inc ticker
is ETSY.

Multiple Tickers Symbol

Some companies may issue different share classes. One line
may grant voting privileges with a low dividend payout,
another may restrict voting privileges while offering a
higher dividend payout.

Another case for the need of multiple tickers is to

distinguish common stock vs preferred stock. The main
difference between the two is preferred shareholders have
no voting rights but have priority over a company’s income in
form of dividend payment, over common shareholders.
Stocks: Fractional Shares
Instead of the whole pie, just help yourself to a slice!

Instead of buying a whole share, some brokers

offer fractional shares or slices. This allows
you to invest in high priced stocks with small
investments and buying partial share
quantities.

So if you only wanted to invest $10 in a

company stock priced at $300, your share will
be 0.03 instead of 1.
 Fractional Shares
Owning fractional shares allow investors to own less than a whole share of a company.

Ration your fraction!

You can take $10 dollars and
spread it across number companies,
Company F Company A investing in fractional shares

Company B

Company E
Company C
Company D
Stocks: Corporate Actions
Examples of Corporate Actions
For several reasons, companies have major structural
changes. The actions in which the company’s board manages
without any participation from the shareholder is called a
mandatory action, the others are considered voluntary
actions.

These Changes Include:

Stock splits

Dividends

Mergers & Acquisitions

Spin-offs

Issuance of Rights
Stocks: Corporate Actions
Stock Splits
One of the main reasons a company may be interested in a stock spilt is to
lower the price of the stock to attract more buyers. When stock prices
are at extreme high levels, small investors may be unable to participate.

The most common is a two-for-one split. This mean for every one share
held, the investor will get an additional share. The stock position went
from one share to owning two shares at half the price. Since the price is
adjusted according, you will own the same value prior to the split.

Before Stock Split After Stock Split

Shares Held 1 2

Stock Price $500 $250

Investment Value $500 $500

Stocks: Corporate Actions
Reverse Split
A company may consider a reverse split to meet listing requirements, add
creditability to their stock. For example, an exchange may require a
company to maintain a certain price point to remain listed. This can be
useful for a company avoiding penny stock status (a share price less than
$1). So in contrary to a stock split, here the price adjust down
accordingly, the opposite is true for reverse splits.

An example of reverse split would be one-for-five split, with every five

stocks owned, you now own 1. The price would be adjust upward
accordingly.

Before Stock Split After Stock Split

Shares Held 5 1

Stock Price $15 $75

Investment Value $75 $75

Stocks: Corporate Actions
Dividends
A company’s ability to make steady dividend payments can
signal strength in a company’s financial well being.
Dividends can be in the form of cash or stock.

Cash Dividends
A shareholder will receive case at a set rate for shares
held. For example, a distribution rate of .08 cents, will earn
a shareholder of 1,000 shares a $240 quarterly payment.
Dividend schedule vary in payment schedule, it could be
monthly, quarterly, or yearly.

Stock Dividends
Instead of receiving cash, a company may decide to
distribute additional shares. For example, a stock dividend
of 10% will allot an additional share for every 10 shares
held. (10 X .1 = 1)
Corporate Actions
Mergers & Acquisitions
This happens when business ownership or operation divisions
are transferred or consolidated with another company.

Companies may engage in such transactions for various

reasons, such as business line expansions, gain more
credibility.

A merger is the combination of two firms that will operate

under one company name.

An acquisition, one company purchases the other outright.

The acquired firm name remains intact, while owned by new
company.
Corporate Actions Spin Offs
When a new and independent company is created through
the sale or distribution of shares of an existing company, or
parent. The is commonly done when a division of a company
disconnects itself to function independently and trade
The Crosby’s publicly. The expectation is the spun off company can be
worth more alone when compared to existing as part of a
larger company.

Companies may find is a need for spinoffs, as to implement a

new business idea that may be outside the primary
company’s scope.

A Different Kind of
World
Corporate Actions
Issuance of Rights
Rights offering is merely an invitation to existing
shareholder to purchase additional shares generally
discounted from the current market price. The price set is
referred to as the subscription price.

A company in need of cash may feel its easier to solicit to

existing investors with a offering than trying to appeal to
the public.
My Notes