Топик: Stock market

A warrant resembles a right in that it is issued by a company and gives the holder the option of buying the stock (or other security) of the company from the company itself for a specified price. But a warrant has a longer life—often several years, sometimes without limit As with rights, warrants are negotiable (meaning that they can be sold by the owner to someone else), and several warrants are traded on the major exchanges.

4.8 Commodities and Financial Futures

The commodity markets, where foodstuffs and industrial commodities are traded in vast quantities, are outside the scope of this text. But because the commodity markets deal in "futures"—that is, contracts for delivery of a certain good at a specified future date— they have also become the center of trading for "financial futures", which, by any logical definition, are not commodities at all.

Financial futures are relatively new, but they have rapidly zoomed in importance and in trading activity. Like options, the futures can be used for protective purposes as well as for speculation. Making the most headlines have been stock index futures, which permit investors to speculate on the future direction of the stock market averages. Two other types of financial futures are also of great importance: interest rate futures, which are based primarily on the prices of U.S. Treasury bonds, notes, and bills, and which fluctuate according to the level of interest rates; and foreign currency futures, which are based on the exchange rates between foreign currencies and the U.S. dollar. Although, futures can be used for protective purposes, they are generally a highly speculative area intended for professionals and other expert inve­stors.

5. STOCK MARKET AVERAGES READING THE NEWSPAPER QUOTATIONS

The financial pages of the newspaper are mystery to many people. But dramatic movements in the stock market often make the front page. In newspaper headlines, TV news summaries, and elsewhere, almost everyone has been exposed to the stock market averages.

In a brokerage firm office, it’s common to hear the question “How’s the market?” and answer, “Up five dollars”, or “Down a dollar”. With 1500 common stocks listed on the NYSE, there has to be some easy way to express the price trend of the day. Market averages are a way of summarizing that information.

Despite all competition, the popularity crown still does to an average that has some of the qualities of an antique–the Dow Jones Industrial Average, an average of 30 prominent stocks dating back to the 1890s. This average is named for Charles Dow–one of the earliest stock market theorists, and a founder of Dow Jones & Company, a leading financial news service and publisher of the Wall Street Journal .

In the days before computers, an average of 30 stocks was perhaps as much as anyone could calculate on a practical basis at intervals throughout the day. Now, the Standard & Poor’s 500 Stock Index (500 leading stocks) and the New York Stock Exchange Composite Index (all stocks on the NYSE) provide a much more accurate picture of the total market. The professionals are likely to focus their attention on these “broad” market indexes. But old habits die slowly, and someone calls out, “How’s the market?” and someone else answers, “Up five dollars,” or “Up five”–it’s still the Dow Jones Industrial Average (the “Dow” for short) that they’re talking about.

The importance of daily changes in the averages will be clear if you view them in percentage terms. When the market is not changing rapidly, the normal daily change is less than ½ of 1%. A change of ½% is still moderate; 1% is large but not extraordinary; 2% is dramatic. From the market averages, it’s a short step to the thousands of detailed listings of stock prices and related data that you’ll find in the daily newspaper financial tables. These tables include complete reports on the previous day’s trading on the NYSE and other leading exchanges. They can also give you a surprising amount of extra information.

Some newspapers provide more extensive tables, some less. Since the Wall Street Journal is available world wide, we’ll use it as a source of convenient examples. You’ll find a prominent page headed “New York Stock Exchange Composite Transactions”. This table covers the day’s trading for all stocks listed on the NYSE. “Composite” means that it also includes trades in those same stocks on certain other exchanges (Pacific, Midwest, etc.) where the stocks are “dually listed”. Here are some sample entries:

52 Weeks				Yld	P-E	Sales				Net
High	Low	Stock	Div	%	Ratio	100s	High	Low	Close	Chg.
52 7 /8	37 5 /8	Cons Ed	2.68	5.4	12	909	49 3 /8	48 7 /8	49 1 /4	+1/4
91 1 /8	66 1 /2	Gen El	2.52	2.8	17	11924	91 3 /8	89 5 /8	90	-1
41 3 /8	26 1 /4	Mobil	2.20	5.4	10	15713	41	40 1 /2	40 7 /8	+5/8

Some of the abbreviated company names in the listings can be a considerable puzzle, but you will get used to them.

While some of the columns contain longer-term information about the stocks and the companies, we'll look first at the columns that actually report on the day's trading. Near the center of the table you will see a column headed "Sales 100s". Stock trading generally takes place in units of 100 shares and is tabulated that way; the figures mean, for example, that 90,900 shares of Consolidated Edison, 1,192,400 shares of General Electric, and 1,571,300 shares of Mobil traded on January 8. (Mobil actually was the 12th "most active" stock on the NYSE that day, meaning that it ranked 12th in number of shares traded.)

The next three columns show the highest price for the day, the lowest, and the last or "closing" price. The "Net Chg." (net change) column to the far right shows how the closing price differed from the previous day's close—in this case, January 7.

Prices are traditionally calibrated in eighths of a dollar. In case you aren't familiar with the equivalents, they are:

1/8 =$.125

1/4=$.25

3/8 =$.375

1/2 =$.50

5/8 =$.625

3/4=$.75

7/8 =$.875

Con Edison traded on January 8 at a high of $49.375 per share and a low of $48 875, it closed at $49.25, which was a gain of $0.25 from the day before. General Electric closed down $1.00 per share at $90 00, but it earned a "u" notation by trading during the day at $91 375, which was a new high price for the stock during the most recent 52 weeks (a new low price would have been denoted by a "d").

The two columns to the far left show the high and low prices recorded in the latest 52 weeks, not including the latest day. (Note that the high for General Electric is shown as 91 ¹ /₈ , not 91 ³ /₈ .) You will note that while neither Con Edison nor Mobil reached a new high on January 8, each was near the top of its "price range" for the latest 52 weeks. (Individual stock price charts, which are published by several financial services, would show the price history of each stock in detail.)

The other three columns in the table give you information of use in making judgments about stocks as investments. Just to the right of the name, the "Div." (dividend) column shows the current annual dividend rate on the stock — or, if there's no clear regular rate, then the actual dividend total for the latest 12 months. The dividend rates shown here are $2.68 annually for Con Edison, $2.52 for GE, and $2.20 for Mobil. (Most companies that pay regular dividends pay them quarterly: it's actually $0.67 quarterly for Con Edison, etc.) The "Yid." (Yield) column relates tie annual dividend to the latest stock price. In the case of Con Edison, for example, $2.68 (annual dividend)/$49.25 (stock price) ==5.4%, which represents the current yield on the stock.

5.1 The Price-Earnings Ratio

Finally, we have the "P-E ratio", or price-earnings ratio, which represents a key figure in judging the value of a stock. The price-earnings ratio—also referred to as the "price-earnings multiple", or sometimes simply as the "multiple"—is the ratio of the price of a stock to the earnings per share behind the stock.

This concept is important. In simplest terms (and without taking possible complicating factors into account), "earnings per share" of a company are calculated by taking the company's net profits for the year, and dividing by the number of shares outstanding. The result is, in a very real sense, what each share earned in the business for the year — not to be confused with the dividends that the company may or may not have paid out. The board of directors of the company may decide to plow the earnings back into the business, or to pay them out to shareholders as dividends, or (more likely) a combination of both; but in any case, it is the earnings that are usually considered as the key measure of the company's success and the value of the stock.

The price-earnings ratio tells you a great deal about how investors view a stock. Investors will bid a stock price up to a higher multiple if a company's earnings are expected to grow rapidly in the future. The multiple may look too high in relation to current earnings, but not in relation to expected future earnings. On the other hand, if a company's future looks uninteresting, and earnings are not expected to grow substantially, the market price will decline to a point where the multiple is low.