Investing 101

We offer this information as a service to our members that want to learn some investment basics. This is a great starting point for anyone wishing to add to their knowledge about stock investing. The lessons below will guide your through the basics of stock market terminology, the importance of investing, and how to get started in investing. Additionally, we have provided some helpful tools and links to other sites that will continue to build your knowledge base.

Lesson # 1 Learn the Key Terms

The first thing a beginner investor needs to do is learn the "market talk." The following are common investment terms used when referring to stocks and the stock market.

Glossary of basic investing terms:

Ask Price (or "offer" price): The price at which a Market Maker is willing to sell a security. *Assets: Any possessions that have value on an exchange. Assets include tangible items such as inventories, equipment, real estate, as well as intangible items such as property rights or goodwill. Bear Market: A bear market is one in which prices are low or declining. Blue-chip stocks: A term generally applied to stocks of well-established companies that are known for their long-standing track records. * Broker: An individual or a firm that brings together buyers and sellers but does not take a position in the asset to be exchanged. Bull Market: A bull market is one in which stock prices are high or rising. Dow Jones Industrial Average (DJIA): The Dow Jones Industrial Average Index (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including American Express, AT&T, and as of 2000, Microsoft. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. The components, which change from time to time, represent between 15 and 20 percent of the market value of NYSE stocks. The DJIA is calculated by adding the closing prices if the component stocks and by using a divisor that is adjusted for splits and stock dividends equal to 10 percent or more of the market value of an issue, as well as substitutions and mergers. The average is quoted in points, not in dollars. IPO: A company's first sale of stock to the public. Companies making an IPO are seeking outside equity capital and a public market for their stock. Earnings: Income of a business (revenue minus expenses). *Earnings per share or EPS: Income (or earnings) for a specific period (usually a quarterly or a fiscal year period) divided by the average number of shares outstanding during that period. Market Maker: A broker/dealer that maintains a firm bid and offer price in a given security by standing ready to buy or sell at publicly quoted prices. Stock: Ownership of a company or corporation, represented by "shares" of stock that claim ownership on the company's earnings and assets.

The Over-The Counter Market:

Over-The-Counter Stock: A stock that is traded electronically among a group of broker/dealers instead of an exchange like the NYSE or AMEX. The Over-The Counter Market is currently divided into four 'tiers".

Exchanges, Indexes and averages

Exchange: An organized marketplace in which stocks, common stock equivalents, and bonds are traded by members of the exchange, acting both as brokers and dealers/traders. Such exchanges have a physical location where brokers and dealers meet to execute orders from institutional and individual investors and to buy and sell securities.

NYSE: New York Stock Exchange. The NYSE is the oldest, largest and most honored exchange in the United States. The NYSE is sometimes referred to as the Big Board. Thousands of larger companies are listed on this exchange and it has many operating divisions composed of marketers, legal experts, developers, planners, and economists. The NYSE is considered to be one of the more economic "indicators."

AMEX: The American Stock Exchange© is the second largest floor-based securities exchange in the United States. It has significant presence in both listed equities and derivative securities. Amex had long been on the leading edge of exchanges worldwide in trading-floor technology, service to its listed companies, and innovative new product development. The National Association of Securities Dealers, Inc., in 1998, acquired it.

NASDAQ: The National Association of Security Dealers Automated Quotations. The NASDAQ is a computer operated and owned by NASDAQ that provides dealers with price quotations for stock and securities traded on the NASDAQ. Stocks on the NASDAQ feature many new and volatile corporations and many of them relatively new.

INDEX: A market indicator, such as the NASDAQ Composite or the Dow Jones, that represents a measure of the relative value of a combined group of stocks.

S&P 500: (Standard & Poor's Corporation) A company well known for its rating of stocks and bonds according to investment risk (the standard and Poor's Rating) and for compiling the Standard & Poor's Index-commonly called the Standard & Poor's 500-that tracks 400 industrial stocks, 20 transportation stocks, 40 financial stocks, and 40 public utilities as a measurement indicative of broad changes in the market.

Dow Jones Averages: The Dow Jones Industrial Average or (DJIA) is a price-weighted average of 30 actively traded blue chip stocks, primarily industrials but including American Express Co. and AT&T. Prepared and published by Dow Jones & Co., it is the oldest and most widely quoted of all the market indicators. The average is quoted in points, not in dollars.

Dividends, splits and adjustments

Dividend: Distribution to shareholders of cash or stock declared by the company's board of directors

Stock Split: The division of outstanding shares of a corporation into a larger number of shares. For example: in a 3-for-1 spilt, each holder of 100 shares before would now have 300 shares, although the proportionate equity in the company would remain the same.

*Reverse Stock Split: A proportionate decrease in the shares of stock held by stockholders. For example, a 1-for-3 split would result in the stockholders owning 1 share for every 3 shares owned before the split. A company generally institutes a reverse split in order to increase the market price of its stock.

Mutual Funds

Mutual Fund: Fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities or money market securities.

Portfolio: The combined holdings of more than one stock, bond commodity, real estate investment, or other assets by an individual or institutional investor.

Sources: * denotes that definition was abstracted from Wall Street Words. The remainder of the definitions where taken from Glossary of Investing Terms by NASDAQ.

Lesson # 2 Understand Investing

Now that you got the basics terms down and can refer back to them, let's move on to the importance of investing. By reading through these commonly ask questions you will get a better idea why you should invest.

Why can't I just put my money in a savings account?
According to Nasdaq, making the leap from saving to investing is crucial in making sure you're financially prepared for retirement. Saving means socking money away, typically in a bank savings or mutual fund money market account, where you earn a relatively low rate of interest. Investing, by contrast, means owing assets, such as stocks or real estate, which over time produce far more substantial earnings that a savings account.

Is there a risk of loss?
Yes, there is always a risk of loss when a benefit of gain is present. A good tip for a beginner is to start out with what you can afford to lose. Watch the stock market for its ups and downs and begin to feel comfortable with its volatility. Besides, buying stocks is the best way for an investor to learn about the market, which will lead to wiser investments in the future.
Note: The worst thing that can happen to a new investor is to make great gains right away. This will cause the investor to think the stock market is a guarantee and causes many of them to invest all they have. Only increase your investments when you are comfortable with the market and its activities.

What can I do to increase my chances of making a good investment decision as a beginner?
The key to success is education, not luck! Reading this is a great way to begin learning the basics. If you would like to learn more you could visit the other Internet sites provided at the end of Investing 101 or check out the recommended books. You can also take a course at a local community college (beware, however that your professor could be a broker looking to sell you commissioned products). Also, consider joining the American Association of Individual Investors (www.aaii.org), a non-profit organization that can offer a great number of educational tools that will help you to prepare to invest.

What are the benefits of investing?
Investing offers people a way to guard themselves against inflation (inflation is the rate at which prices for everything from a loaf or bread, to a new car, increase over time). Investing is a way people can make more money than they lose through inflation. It allows individuals to save for such things as their child's college tuition, and their own retirement (let's face it social security may not be there when your ready to retire).

What are Microcap stocks (or smallcap stocks) and how can I receive information about them?
The term "microcap stock" applies to companies with low or "micro" capitalization, meaning the total value of the company's stock. Microcap companies typically have limited assets. They trade in the 'over-the-counter' (OTC) market and are quoted on OTC systems, such as the OTC Bulletin Board (OTCBB) or the "pink sheets." To receive information about these companies you can ask your investment professional if the company you are interested in files with the SEC (most microcap do not have to file) and request information from the broker about the business, its finance and the management of the company. You may also receive information by contacting the company directly.

When should I begin investing?
The sooner the better. In the world of investing according to www.moolera.com, time works wonders. Suppose the $1000 that was initially headed for the coffee can was diverted toward an investment where the money could grow at an average of 12 percent annually. Not including taxes or other expenses, at the end of the first year, that initial $1000 would now be worth $1120 ($1000 x .12 = $120). Now consider year two and the power of compounding. The beginning balance for year two is no longer $1000 but is $1120. That means that $1120 would now be earning a 12 percent return. At the end of year two that total balance would be $1254.40, $ 14.40 extra growth over the $120 the year before. This may not seem like a lot but consider that growth over a period of 10, 20, 40 years. This is what can drive a small investment into a large one over time.
Consider what investing now verses later can mean for you:

Lesson #3 Wow that sounds great! How do I get started?

There are three steps to get your self on the road of investing.

1.Choose An Investment Broker: You will soon find after making a few calls from the Yellow Pages that each broker offers different levels of services that includes different stock picking methods and commission schedules. Select the investment brokerage based on the service you need:

On-line Stock Broker: On-line stock trading offers the lowest commission and in most cases there is no broker to talk to. Investor logs on and enters a transaction using their keyboards. There is usually a customer service department available to answer questions you may have. Although convenient, this is not recommended for the beginning investor. For more detail about on-line stockbrokers visit one like E*Trade at http://www.etrade.com/.

Full Service Investment Brokers: This type of brokerage house will give the investor advice on what types of stocks, bonds, and commodities to buy. They also provide information on when to buy and sell. They may offer other services like financial planning, tax shelters or advise of new stock issues or special situations. Full service investment broker's commission is higher than a discount broker.

Discount Stock Brokers: This type of broker executes stock trades (at the customers direction) at a commissioned rate. The traders are still responsible for their own transactions. They will answer questions about transactions, and advise on the actual order, but not on which stock to buy or when. Some discount brokers will offer telephone and online trading.

2. Now its time to set up an account: Most brokerage firms require a minimum to start. This range is usually from $500-2500. However, once the account is open you are not required to keep a minimum balance. This means you have the freedom to invest your money or take it out of the account. ·

3. After choosing a broker and setting up your account you are ready to make your First Trade. Before you do this be sure to have taken the time to do your research. Remember your brokerage firm is there to help you! And be sure to always save your account statements. You will need them for tax purposes when you sell to show how much you originally paid for the stock.

Lesson # 4 Knowledge is Power. Here's some website and books we recommend to learn more about investing:

www.NYSE.com

www.nasdaq.com

www.bloomberg.com

http://sg.finance.yahoo.com/

Also check out http://www.hedge-hog.com/ they have a great useful link option for information about brokers.

Recommendations for books on investing:

National Investor Relations Institute recommends:
· Fundamental of Investing by Lawrence J. Gitman and Michael D. Joehnk-about $69.

Other books for beginning investors:
· 1001 Ways to Save, Grow, and Invest Your Money by David E. Rye-about $ 13.
· Basic Investing Guide for the New Investor by Alfred V. Scillitani-about $11.
· Investing For Dummies by Eric Tyson-about $16.

Congratulations! By reading through investing 101 you have begun the process of educating yourself about the stock market. Remember to be patient and don't let the stock market intimidate you. Happy investing.