row also reports a dividend yield of 1.56 percent, which is the dividend divided by the
stock price.
The third row reports the range of prices for the day and the first trade of the day,
called the open price. Thus, Abbott Labs opened the day at $53.50, traded as low as
$52.98 and as high as $53.99, and finally closed at $52.98, its low for the day. If Abbott
Labs had been listed on Nasdaq, the most recent bid and ask quotes from dealers
would have been shown. Because Abbott Labs trades on the NYSE, this data is not
available.
The bottom row shows the price range of Abbott Labs’ stock during the past year,
which was from $42.00 to $56.25. The chart to the right shows the daily prices for
the past year, and the links below the chart allow a web user to pick different intervals
for data in the chart. The bottom row also reports the earnings per share, based on
the earnings in the past 12 months. The ratio of the price per share to the earnings
per share, the P/E ratio, is shown on the bottom row. For Abbott Labs, this is 49.80.
The total market value of all its stock is called Mkt Cap, and it is $82.195 billion.If a stock is notin equilibrium, explain how financial markets adjust to bring it
into equilibrium.
Explain why expected, required, and realized returns are often different.
What are the key benefits of adding foreign stocks to a portfolio?
When a U.S. investor purchases foreign stocks, what two things is he or she hop-
ing will happen?Actual Stock Prices and Returns 215A Nation of Traders
A recent story in Fortuneprofiled the dramatic revolution in
the way investors trade stocks. Just a few years ago, the vast
majority of investors bought and sold stocks by calling a full-
service broker. The typical broker would execute orders,
maintain records, assist with stock selection, and provide
guidance regarding long-run asset allocations. These ser-
vices came at a price—when investors bought stocks, the
commissions were often well in excess of $100 a trade.
While the full-service broker is far from dead, many are
on the ropes. Now large and small investors have online ac-
cess to the same type of company and market information
that brokers provide, and they can trade stocks online at less
than $10 a trade.
These technological changes, combined with the eupho-
ria surrounding the long-running bull market, have encour-
aged more and more investors to become actively involved
in managing their own investments. They tune in regularly
to CNBC, and they keep their computer screens “at the
ready” to trade on any new information that hits the market.
Online trading is by no means relegated to just a few
investors—it now represents a significant percentage of all
trades that occur. The Fortunearticle pointed out, for exam-
ple, that in 1989 only 28 percent of households owned stock,
while 10 years later this percentage had risen to 48 percent.
Moreover, in 1999 there were 150 Internet brokerage firms
versus only 5 three years earlier. Virtually nonexistent three
years ago, today the percentage of stocks traded online is ap-
proximately 12.5 percent, and that number is expected to
rise to nearly 30 percent in the next two or three years.
Changing technology is encouraging more and more in-
vestors to take control of their own finances. While this
trend has lowered traditional brokers’ incomes, it has re-
duced transaction costs, increased information, and empow-
ered investors. Of course, concerns have been raised about
whether individual investors fully understand the risks in-
volved, and whether they have sound strategies in place for
long-run investing once the current bull market ends.
Good or bad, most observers believe that online trading
is here to stay. However, there will surely be a continuing,
but changing, need for professional advisors and stockbro-
kers to work with the many investors who need guidance or
who tire of the grind of keeping track of their positions.Source:Andy Serwer, Christine Y. Chen, and Angel Key, “A Nation of
Traders,” Fortune(1999), 116–120. Copyright © 1999 Time Inc. All rights re-
served. Reprinted by permission.