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18-6 Securities: Stocks & Bonds CH 18]

Figure 18.2 Stocks: 89 shares (odd lot) of Union Pacific stock with a par value $2.50; Less than 100 lot.
Incorporated in the State of Utah.
100 Shares (round lot) of The Great Atlantic & Pacific Tea Company with a par value of $1.00.
Incorporated in the State of Maryland.

a rumor, and they are not concerned with the manufacture of products, research and
development for new or improved products, or the business plan of the firm.
Don’t view speculation as a wholly bad thing as speculators add liquidity to markets and there
are those speculators who have done well in their work. At the same time there are those smart
investors who have lost their fortunes in the stock market through speculation.
The important distinction between investors and speculators is that investors are generally
more interested in the processes underlying prices; investors are investing for long periods of time
with corporate profitability and market demand in mind, while speculators are more interested in
the price itself with shorter time lines for making a quick return on their investment.

Buying stocks. How many shares can be purchased? The short answer is whatever number
you can afford. However, many people would say the smallest number of shares an investor can
purchase is one, but the real answer is not quite that straightforward. While there is no minimum
order limit on the purchase of a publicly traded company's stock, it's advisable to buy blocks of
stock with a minimum value of $500 to $1,000.
Most stocks listed on the stock exchanges are bought and sold in 100 share trading units or
lots. The typical lot size being100 shares. This is known as a round lot. A round lot can also refer
to a number of shares that can evenly be divided by 100, such as 300, 1,200, and 15,500 shares.
Still for some stocks that are not traded frequently, 10 shares is a round lot.
Odd lots are also traded. An odd lot is considered to be anything less than the standard 100
shares for stocks. Thus, a transaction containing from 1 to 99 shares would be an odd lot. Should
the share trading lot be 300 then a transaction containing from 1 to 299 shares would be an odd
lot. Similarly trading from 1 to 9 shares is an odd lot for a stock with a 10 share trading unit.
Stocks may be bought and sold in round lots or in odd lots or in a combination of both.
Pension funds, mutual funds, insurance companies and other institutional purchasers buy in
Risk : The large blocks of round lots to be added to their portfolio; and in diversified units to spread their
opportunity to lose. risk. Risk is the opportunity to lose and simultaneous with risk is the potential for reward. A key
It also has with it factor in successful investing is spreading investments, known as diversification, to limit risk. The
the opportunity for thinking on this is that if one area of investment is in a downward market, the other areas could
reward. Business
people take be in an upward market thus protecting the total value of the invested money.
calculated risks in What would a market diversification plan include? Individual investors have their own,
their market to distinct attitude towards risk and apply their knowledge and preferences accordingly. But
meet consumer consider diversification through industries remembering that many are interconnected. A plan for
demand. When stock acquisitions could be: (1) transportation, which would include air, rail, ocean, and trucking;
correct they are (2) consumables such as food, which would include food processors, wholesalers, and retail
rewarded for their outlets such as grocery chains; (3) merchandising companies, which might include retailers who
investment, which
is at risk. carry a variety of goods such as appliances and clothing, and those factories and manufacturers
that are suppliers for those goods; (4) equipment manufacturers such as automobile, tires,
mufflers, aircraft manufacture, heavy equipment and farming equipment; (5) entertainment
industry such as the production companies and those support manufacturers that supply the

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