Source: (c) Stocks, Bonds, Bills, and Inflation 2000 Yearbook., Ibbotson Associates, Chicago (annually updates work by Roger G. Ibbotson and Rex A. Sinquefield). Used with permission. All rights reserved christian louboutin outlet . CHAPTER 3: Picking Winning Stocks the share price increases. Theoretically, your opportunities for profit are boundless. However, if the firm’s prospects start to sour and it looks like profits will turn down, more people will want to sell than buy, and the share price will fall. Another way to own a piece of a company is through ownership of preferred shares. Owners of preferred shares, though they usually do not have voting rights on company matters, are entitled to receive their dividends before common shareholders, and if the company is liquidated, preferred claims are satisfied before common shareholders’ claims. Preferred dividends are set at the time the shares are issued and therefore cannot rise over time as common dividends can if the company performs well. In general, preferred stock is not as volatile as common stock; thus, it does not offer as much appreciation or depreciation potential. Some preferred issues, known as convertible preferreds, can be converted into common shares at a preset price. The Basics of Being a Shareholder As a shareholder, you are also entitled to receive quarterly updates on how your company is doing. You will be mailed a report that tells you whether profits were up or down and what other major corporate developments occurred in the last three months. You will also get a more detailed annual report outlining how the numbers for the latest year compare with prior years, as well as the company’s plan for the future. You will also be invited to vote at the firm’s annual meeting, either in person at the meeting or by a mail proxy ballot. You will vote christian louboutin bridal shoes on important matters, such as whether a major acquisition should be completed. At most comp buy christian louboutin anies, you get one vote for every share you own. So unless you own an enormous number of shares, you shouldn’t expect to have much influence over the company’s strategic direction. For the most part, you are along for the ride while the professionals running the company do their best to maximize profits. In addition to the profit potential from a rising share price, you can earn money from stocks by collecting dividends. If the corporation is profitable and the board of d christian louboutin pumps irectors decides it is prudent, the Louboutin UK firm will send you a quarterly check for yo christian louboutin shoes sale ur piece of the profits, known as a dividend. Dividends are normally paid by large, well-established companies that are sure they will achieve a certain level of profit each year. Smaller and newer firms usually do not pay dividends because they want to reinvest all of their profits back in the business to make it grow faster. Unlike other investment vehicles such as bonds, certificates of deposit (CDs), or futures contracts, shares in a company never mature or expire. As long as the company stays in business, the shares have some value. If the company goes out of business, however, your stock will probably become worthless because when a corporation is liquidated, shareholders get what’s left after the Internal Revenue Service (IRS), bankruptcy lawyers, and all other creditors, including bondholders and preferred shareholders, are paid. In most cases, that means the shareholders’ stake is wiped out. On the bright side, you might still appreciate your stock certifi PART ONE: Max discount christian louboutin imizing Your Investment Options cate as a wall hanging in your living room, as it might re christian louboutin bridal mind you of the hopes you had for the company issuing it. Why would a profitable company want to give you a chance to participate in its growth? Because it needs the money that the sale of stocks generate in order to ru christian louboutin uk n and expand the business. When a company offers shares to the public for the first time, known as an initial public offering, the proceeds of the sale help the company open new factories, research and develop new products, acquire other businesses, or pay down debt. Later, if the company needs more capital to grow, it can issue additional shares in what is known as a secondary offering. Most of the time when you buy shares, however, your money is going to the person or institution selling the shares, not to the company. The company benefits by havin christian louboutin outlet g a constant market price for its shares so it knows how much money it can raise if it wants to do a secondary offering. The person selling you his or her shares might be doing so for several reasons. The person might have a big profit in the shares and want to cash in. The person might have found what he or she thinks is a better investment opportunity in another stock. He or she might need the money to meet expenses. Or the seller might think that the company’s stock is about to fall because this year’s profits will not be as high as people expect. Whatever a person’s reason may be, you will never know because you won’t meet the person selling you your stock. Because it would be difficult for you to find someone on your own who has shares and wants to sell, just as it would be impossible for him or her to find someone who wants to buy the shares, a centralized marketplace called a stock exchange has been set up to facilitate buying and selling. You can’t just go down to the stock exchange with your certificates and sell your shares on your own, however. You must execute trades through a brokerage firm that is a member of the exchange. The following are the five most common kinds of orders you can give a broker to buy or sell shares: Day order. This is an order to buy or sell a stock at a particular price on the day the order is placed. If the trade is not executed on that day, the order expires. Good-this-month (GTM) order. A GTM order tells a broker to buy or sell a stock at a particular price any time during the current month. If the trade is not executed by the end of the month, the order expires. A variation of this order is a good-this-week order, which expires within a week. Good-till-canceled (GTC) order. A GTC order tells your broker to buy or sell a particular stock when it hits a specific price, whenever that might be. Such an order remains in effect until it is canceled. As long as the GTC order is in effect, it is known as an open order. Limit order. With a limit order, you are telling your broker to buy or sell a particular stock at a certain price or better. For example, if you want to buy a stock for $27 a share that is now trading at $30, you can place a limit order at $27. If CHAPTER 3: Picking Winning Stocks the stock falls quickly below $27, your broker would execute the order at the lower price, saving you money. On the other hand, if you want to sell a stock at $40 that is now trading at $35 and the stock suddenly shoots up beyond $40, the broker would execute the limit order and obtain an even higher price for your shares. Stop order. With a stop order, you are trying to protect a profit or limit further losses. The most frequently used stop order, known as a stop-loss order, tells your broker to sell your stock at whatever the market price is when the stock hits a specific price less than the price for which it is currently trading. For example, say you bought a stock at $40 a share and it has since risen to $60. If you want to protect your profit, you can place a stop-loss order at $50. However, if the company suddenly announces that its earnings were far less than expected in the latest quarter and the stock plummets to $45, your order will be executed at $45, which is the next market price after the stock hits $50. If you want to make sure you get $50 a share, you should place a limit order. If you are selling short—that is, betting that a stock will fall in price—you can use a stop order to buy back shares at a particular price to prevent your losses from mounting. The risk in placing stop orders is that they may be executed because of a momentary setback in a stock’s price. This is why you should not set stop orders too close to the current market price. Most pros leave a 20 percent margin to avoid losing a stock that will bounce back. The following are three principal exchanges where you can buy and sell stocks: New York Stock Exchange (NYSE). Founded in 1792, the NYSE is the oldest, largest, and most prestigious of the stock exchanges. Located on the corner of Wall and Br Cheap Louboutin oad streets in downtown Manhattan, the Big Board, as it is called, is home to about 3,000 of the largest and most well-established companies in the United States. In addition, many foreign companies offer their shares for trad christian louboutin outlet ing on the NYSE in the form of American depositary receipts (ADRs), which for all practical purposes are the same as U.S UK christian louboutin . shares. The listing requirements to trade on the NYSE are much more stringent than those to trade on other exchanges. The NYSE uses a specialist system for trading stocks, which means that a specialist is assigned to maintain a fair and orderly market in every stock. Under normal conditions, brokers representing buyers and sellers meet in front of the specialist’s post to agree on a price. However, when there is a sudden surge of buyers or sellers because of some dramatic event, the specialist must step in to take the other side of the trade. For example, if a company announces that it is being acquired at a much higher than market price, a stampede of buyers will descend on the trading post. The specialist must sell shares to those buyers though it would be at a higher price than the price of the shares right before the good news was announced. Similarly, if a company announces that its earnings were much lower in the latest quarter than people expected,