The capital markets and the ability to raise funds for corporate uses are essential to the U.S. economic systems. For this assignment, imagine that you have $25,000 to invest in U.S. companies. You are buying used stock. The company got the money when it issued the stock originally. You will be buying it from an existing owner.
You are investing, or buying the stock, because you believe the company will make money and pay you a dividend in cash. Each share of stock that you buy entitles you to any dividend declared and a vote at the annual stockholders’ meeting.
The stock also allows you the ability to earn your money back by selling the stock. Of course, investing in stocks is risky and there is the possibility that the stock you buy will be worth less when you want your money back. The company is not obligated to give you any of your money back. You will only get your money back if another investor wants to buy your stock.
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For your first journal entry complete the following:
- Indicate the companies you are investing in: Please use your knowledge and experience and select three (3) US companies that are publicly traded. Make sure you are practicing good diversification. Jim Cramer, Money Manager, on CNBC, plays a game at the end of his show called “Am I Diversified.” Check out a short clip to get a sense of industry diversification at https://www.youtube.com/watch?v=f3lDxexupcE.
- Sources of Information: There are many ways to find such companies and the stock prices, including the New York Stock Exchange at http://www.nyse.com, Google Finance at http://google.com, NASDAQ at http://www.nasdaq.com, and http://finance.yahoo.com.
- Indicate the amount you are investing in each company: Decide how you will divide $25,000 across the three (3) companies; e.g. $10,000 in Company 1, $10,000 in Company 2, and $5,000 in Company 3. You decide the amount you are investing in each company. You do not have to provide any analysis to justify your decisions. You must only provide some reason for picking that company. For example, you might invest in Ford because that company gets a lot of your money and you hear that Ford is doing well, and will continue to do well.
- Indicate the number of shares you are buying, and the price of the shares you are buying for each company: Once you decide the companies and the amount for each company, determine how many shares you can buy. If Company 1 is selling for $42.16, then you may buy $10,000/ $42.16, or 237.19 shares. But you cannot buy a part of a share, so you decide to buy either 237 or 238. In this example you buy 237 shares, at $42.16 per share, investing $9,991.92. You won’t be able to buy exactly $10,000, or $5,000, or $25,000, but it will be relatively close