1. Unit 4: Guidelines
for Investors
Mr. Elsesser
Wall Street I

2. Who is making Investments?
 Investors:
Those who buy stocks for a safe,
steady return in the form of dividends
and/or capital gains.
 Speculators:
Those who tend to take risks with their
investments in the hope of making a big
and quick return on their money
 Ex. Investing in an unknown new
corporation.

3. H Income Stock:
1) Stocks of companies whose dividends
are relatively large and stable.
a Growth Stocks:
1) Stocks of corporations that retain most
of their earnings.
s Emerging Stocks:
Refer to new corporation’s stocks.

4. h Blue Chip Stocks:
1) Stocks of corporations that have been
profitable throughout the years and that have
a history of paying dividends at regular
intervals.
2) They have a national reputation for quality
and reliability.
3) They have the ability to operate profitably in
good and bad times.

5. h Cyclical Stocks:
1) Stocks of corporations that tend to
parallel the cycles or swings of the
economy.
 Ex. Housing, automobile, and airline
industries.
Economy Cyclical Stocks
Economy Cyclical Stocks

6. Defensive or
Staple Stocks
1) Market value
doesn’t get hurt as
badly when economy
goes down.
 Ex. Food,
pharmaceutical
companies.

7. è Penny Stocks:
 Stocks whose prices are less that $1
 Considered very risky
 Part of OTC – can be found on pink
sheets
 Pink Sheets:
 listing of stocks printed on pink paper
and published every day.

8. Stock Market Psychologist
– An investor who understands the
emotional highs and lows of the
stock market.
 Ex. Rumors, opinions, fads can all
send the market up or down.
Dollar Cost Averaging –
Investment strategy in which an
investor buys the same stock with
the same amount of money at
regular intervals for a long period
of time.

9. Stock Dividend:
A dividend that is paid as additional
stock rather than as cash.
Stock Split:
The lowering of the stock price by
issuing more shares to current
shareholders.
 Ex. 2 for 1
You had 1 share at $100
Now, you have 2 shares at $50
Possible reason for a stock split:
Lower stock price will attract more
investors.

10. Institutional Buying:
 Is the purchasing of a large block of stocks
by an institution rather than by an individual
investor.
 Ex. Insurance companies, banks, mutual funds.
 Buying and selling stocks in such large
blocks can dramatically affect the price
of stocks.
 Ex. Cause of the Oct. 1987 crash; DJIA
plunged 508 points in a matter of hours

11. Buying on Margin:
 Investor purchases stocks with money
borrowed from a broker.
 Up to 50% off purchase price.
Margin Account:
Minimum $2,000 account opened with
broker in order to buy on margin.
 Used as collateral.
Leverage:
 Borrowing money to make money

12.  Crash of ’29:
 Stock market
crash that was
brought on, in part,
by no set
requirements for
buying on margin.
 Crash of ’87:
 Stock market
crash that was
brought on, in part,
by large
institutional
buying.