Sharpening Your Communication Skills
Interviewing a full-service broker is one of the most important steps you can take before hiring that broker to execute your trades or manage your funds and investment portfolio. Practice your communication skills by developing two sets of questions:
1. Questions you might ask a stockbroker to help you decide whether you would use his or her services. 2. Questions you might pose to that broker to help you evaluate the merits of purchasing a specific security.
Building Your Team Skills
You and your team are going to pool your money and invest $5,000. Before you plunge into any investments, how can you prepare yourselves to be good investors? First, consider your group’s goals. What will you and your teammates do with any profits generated by your investments? Once you have agreed on a goal for your team’s profits, think about how much money you will need to achieve this goal and how soon you want to achieve it. Next, think about how much risk you personally are willing to take to achieve the goal. Bear in mind that safer investments generally off er lower returns than riskier investments—and certain investments, such as stocks, can lose money. Now hold a group discussion to find a level of risk that feels comfortable for everyone on your team. Aft er your team has decided how much risk to take, consider which investments are best suited to your group’s goals and chosen risk level. Will you choose stocks, bonds, a combination of both, or other securities? What are the advantages and disadvantages of each type of investment for your team’s situation? Then come to a decision about specific investment opportunities—particular stocks, for example—that your group would like to investigate further. Compare your group’s goal, risk level, and investment possibilities with those of the other teams in your class and discuss the differences and similarities you see.
Developing Your Research Skills
Stock market analysts advise investors (both individuals and institutions) on which stocks to buy, sell, or hold. Changes in their opinions are called upgrades or downgrades , depending on the direction of their outlook. Changing a “hold” recommendation to a “buy” recommendation is an upgrade, for example. Find a stock that has been recently upgraded or downgraded (you can use New Ratings, www.newratings.com , or a similar source), and then perform some research on that company so you can answer the following questions.
1. Why did the analysts change their rating on this stock? Was it in response to something the company said or did? Is the company performing better or worse than its competitors? Do you think the rating change is fair to the company?
2. How did the rating change affect the company’s stock price?
3. How has the company’s stock been performing relative to the Dow Jones Industrial Average (DJIA) and S&P 500 indexes?