How to Invest in Global Markets, a Conversation

How to Invest in the Stock Market

An English Conversation

Stacy: I'm puzzled with my stock broker's advise. He's asking me to hold the tech stock I don't like.

Bobby: Well. Stock brokers give advise, first based on their own self-interest; second it's hard to find a good stock broker. What's the problem with your tech stock?

Stacy: I know that, but he's supposed to be one of the best. He has very high ratings.

Bobby: Ratings are also subjective. Tell me what's wrong your tech stock.

Stacy: He talked me into purchasing it three months ago, I've made only 500 hundred dollars out of my 40,000 dollars purchase for the last three months. Now, I've lost all that 500 dollars, but he still wants me to hold the stock.

Bobby: Stacy, you're lucky you haven't lost anything on your principle yet. Is the 40,000 your entire portfolio?

Stacy: No, I have more on mutual funds and government bonds.

Bobby. Okay. That makes sense. Tech stocks are most volatile stocks that may yield high returns for a short term and then sharply dip.

Stacy: So, what am I supposed to do now? Hold or sell them?

Bobby: First, have a balanced investment portfolio.

Stacy. Tell me how?

Bob: Put your money in different securities. Security means an investment type on the stock market, such as stocks, bonds, mutual funds, CD's, and etc.

Stacy: Okay. I got you.

Bobby: Second, before your principal starts dwindling you should set a limit, a percentage of loss you're willing to risk.

Stacy: For example, say 1 percent?

Bobby: More or less so, but you need understand your risk. Your risk taking must correlate to the probable return on your investment.

Stacy: You mean like high return or moderate return or low return?

Bobby: Yes, and you must do your homework on the stock. Go to http://morningstar.com or http://moneycentral.msn.com. These websites provide reliable data on stocks.

Stacy: I'll try them, but for an average person like me, is it easy to understand that stuff?

Bobby: I think you'll be fine. First, you should never put a big bulk of your money one stock. Second, you have to set an limit figure, a percentage of loss you're willing to risk on your principle.

Stacy: Are you saying I can wait little bit longer now until I lose, say 1 percent of my principle?

Bobby. Yes and no. You don't have to wait unless you're dead sure this stock will perform as expected by stock market indexes?

Stacy: Wait. What'd you mean by market stock indexes?

Bobby: You must have heard major indexes like S & P 500; Dow Jones and Nasdaq.

Stacy: Yes, they're every where, but I have no idea what they are for.

Bobby: The S & P 500, Dow Jones and Nasdaq are major stock market indexes developed by market experts based on several factors.

Stacy: So, stock market experts make educated guesses on a stock's future performance?

Bobby: Yes, they are in a way. They forecast high probability performance of the stock. There're stocks with high beta value.

Stacy: What's beta value?

Bobby: Beta value means this: a measure of a stock volatility in relation to the Standard & Poor's 500, which by definition has a beta of 1.0. A beta higher than 1.0 predicts greater volatility than the overall market.

Stacy: Are you saying I must understand them for making better investment decisions?

Bobby: Yes, you must. Yo must understand why you make an investment on a stock.

Vocabulary:

stock: a supply of capital, money or capital invested or available for investment

stock broker:a person owe who executes orders to buy and sell securities and often also acts as a security dealer

rating: noun. relative estimate or evaluation

principal: noun. the total sum of money invested; amount of investment

portfolio: noun. the securities held by an investor

mutual funds: compound noun. an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations

CD: compound noun. Certificate of Deposit. An investment type usually safe but returns a low interest

government bonds: compound noun. a investment type offered by government, the amount of the money guaranteed by government for the investment

volatile: adjective. unstable

volatility: noun. being volatile

yield: intransitive verb. to give or render as fitting, as determined or required

return: amount of profit or yield from an investment

high return: compound noun. high profit measured against to stock market indexes

moderate return: compound noun. moderate profit measured against to stock market indexes

low return: compound noun. low return measured against to stock market indexes

dip: intransitive verb. to decline or decrease in value moderately and usually temporarily

hold: transitive verb. to wait but not sell a security

sell: transitive verb. to sell a security

investment portfolio: the total amount in dollar value of securities held by an investor

balanced investment portfolio: having an investment portfolio proportionately mixed with different types of securities

beta value: compound noun. a measure of a stock's volatility in relation to the Standard & Poor's 500, which by definition has a beta of 1.0. A beta higher than this implies greater volatility than the overall market.

stock market indexes: A variety of predictions that give an indication of the overall direction and strength of the market.

S & P 500: An index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large capital stocks.

Companies included in the index are selected by the S&P Index Committee, a team of analysts and economists at Standard & Poor's. The S&P 500 is a market weighted index - each stock's weight is proportionate to its market value.

Dow Jones: an indicator of stock market prices; based on the share values of 30 blue-chip stocks listed on the New York Stock Exchange.

Nasdaq: Created in 1971, the nasdaq was the world's first electronic stock market. The NASDAQ is a computerized system that facilitates trading and provides price quotations on some 5,000 of the more actively traded over-the-counter stocks.

performance: outcome measured by an expected value

investment: capital put in a security on the stock market (in this conversation)

Overview:

This conversational lesson discusses the fundamentals of stock trading. Bobby is an experienced stock trader, and he trades stocks online because of convenience as well as low cost of transaction. Stacy has invested on stocks since she got a job after graduating from college. Bobby, an experienced stock trader, gives all the easy yet smart tips on stock investment using an online brokerage firm.

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