Investing 101

Question 1

__________, invest in companies that have stood the test of time. __________, take a more active approach to invest, placing more emphasis on stock price movement than on the real value of the company.

Answer 1

1. Buy-and-Hold Investors
2. Traders

Question 2

When you buy a stock, you’re actually buying a portion of a ___________.

Answer 2

Corporation

Question 3

When you make an investment, you are putting your money into a public company, which allows you-as part of the public to become an owner or to have equity in the company. That’s why stocks are often referred to as _________.

Answer 3

Equities

Question 4

What does Sector Rotation mean?

Answer 4

Different types of industries perform better during specific stages in the economic cycle.

Question 5

What is the difference between industries and sectors?

Answer 5

The industry describes a specific set of businesses, while a sector is technically a broad section of the overall economy and can include more than one industry.
For example, the financial sector includes banking, investment banking, mortgages, accounting, insurance, and asset management- six distinct industries.

Question 6

What are the four economic cycles?

Answer 6

1. Downturn
2. Recession
3. Upturn
4. Recovery

Question 7

How does knowing where in the cycle the economy is help you to make better investing choices?

Answer 7

You can predict where it’s going to go from there, even if you can’t predict the timing. That’s because the economic cycle follows a very definite pattern. e.g.) When the economy is in a deep recession, the next phase of the cycle will be an upturn, a very good time to begin investing more actively. That knowledge, combined with a grasp of sector rotation, can help you profit regardless of the prevailing economic state.

Question 8

What sectors perform well during an economic downturn?

Answer 8

Materials, Consumer staples, health care, energy, and utilities

Question 9

What sectors perform well in a full recession?

Answer 9

Consumer Staples(things everyone needs to buy), health care, Technology, Cyclicals, and Industrial sectors

Question 10

What sectors perform well in a turn toward recovery?

Answer 10

Basic materials and energy sectors, communication services, techonology

Question 11

What sector performs well in a full thriving economy?

Answer 11

Consumer staples sector, Financials, Real Estate, Consumer Discretionary(Things you don’t need to survive), Technology, Industrials, and Materials.

Question 12

What are the business cycle phases?

Answer 12

1. Early
2. Mid
3. Late
4. Recession

Question 13

What happens in the Early business cycle phase?

Answer 13

• Activity rebounds (GDP, IP, employment, incomes)
• Credit begins to grow
• Profits grow rapidly
• Policy still stimulative
• Inventories low; sales improve

Question 14

What happens in the MID business cycle phase?

Answer 14

• Growth peaking
• Credit growth strong
• Profit growth peaks
• Policy neutral
• Inventories, sales grow; equilibrium reached

Question 15

What happens in the Late business cycle phase?

Answer 15

• Growth moderating
• Credit tightens
• Earnings under pressure
• Policy contractionary
• Inventories grow; sales growth falls

Question 16

What happens in the Recession business cycle phase?

Answer 16

• Falling activity
• Credit dries up
• Profits decline
• Policy Eases
• Inventories and Sales fall

Question 17

What are common stocks?

Answer 17

Equity securities are sold to the public, and each share constitutes ownership in a corporation; when people talk about trading shares, they’re talking about common stocks.

Question 18

What are preferred stocks?

Answer 18

While they still denote ownership in a corporation, they also have some characteristics more in common with bonds than with common stocks.

Question 19

What are the requirements for inclusion in the NYSE (New York Stock Exchange)?

Answer 19

• A company must have at least 1.1 million publicly traded shares of stock outstanding
• Market value of at least $100million
• Pre-tax income of at least $10 million over the 3 most recent fiscal years
• Earnings of at least $2 million in the 2 most recent years.

Question 20

Why is NASDAQ attractive to new and growing companies?

Answer 20

Primarily because the listing requirements are less stringent than those of the NYSE, and the costs can be considerably lower.

Question 21

What is the difference between NYSE and NASDAQ?

Answer 21

• NYSE uses an auction style whereas NASDAQ works with more than 600 securities dealers called market makers. These market makers compete against one another to offer the best bid/ask prices or quotes over the NASDQ’s complex network, joining buyers and sellers from all over the world.
• NYSE has a more stringent requirement than NASDAQ.
• NYSE is home to huge prominent industry players like Netflix, Amazon, Meta, etc. NASDAQ is home to companies that typically fall squarely in the aggressive growth category.

Question 22

What are Dividends?

Answer 22

Payments to shareholders that are not based on the stock price but are made simply because the company has reaped healthy profits and chooses to reward shareholders.

Notes:
- To be entitled to dividends, you must actually own the shares on the record date, which is the day the board of directors declares a dividend.
- Compare the current dividend with the dividends paid over the past five years. Shrinking dividends may indicate plans for expansion; when a company’s primary goal is growth, dividends may be small or nonexistent.

Question 23

What are Income stocks?

Answer 23

Stocks that pay dividends

Question 24

What is Shares outstanding?

Answer 24

The number of shares a company has issued to the general public, including its employees.

Notes:
- Companies with at least 5 million shares outstanding indicate that the stock is heavily traded, which means there will be a ready market for it should you decide to sell your shares.
- More shares outstanding can mean smaller dividends per shareholder.

Question 25

What are Blue Chips?

Answer 25

Considered to be the most prestigious, well-establish companies that are publicly traded, many of which have practically become household names.

Question 26

What are Growth Stocks?

Answer 26

Companies that have strong growth potential.
Many companies in this category have sales, earnings, and market share that are growing faster than the overall economy.

Notes:
- Represent companies that are big on research and development; e.g) pioneers in new technologies are often growth-stock companies.
- Earnings in these companies are usually put right back into the business, rather than paid out to shareholders as dividends.