Please note that this journal assignment is based on a pretend
scenario and fictitious money. However, the assignment is based on
actual stock pricing in real time situations. Do not invest your
personal money for this assignment.
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.
For your first journal entry complete the following:
- Indicate the companies you are investing in: Select
three (3) US companies that are publicly traded. Please use your
knowledge and experience and pick as many stocks as you’d like. 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