16 428 459 emc chap 16 111805 933 am page 437 question

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Unformatted text preview: to soon go down in price. In other words, it is better today to sell at $25 a share than to sell one week from now at $18 a share. 16 (428-459) EMC Chap 16 11/18/05 9:33 AM Page 437 QUESTION: Suppose I buy 100 shares of stock at a price of $40 a share. The stock goes down in price to $32. Shouldn’t I wait until the share price rises to $40 or higher before I sell it? ANSWER: When it comes to stock, what goes down is not guaranteed to go up. In other words, even if the stock’s price has gone down by $8, it might go down more. You want to always look forward to the future (not backward to the past) when deciding whether to sell a stock. If you see reasons for the price to fall even farther, it is better to sell at $32 (and take a $8 per share loss) than to sell at $25 and take a bigger loss. If you believe the price will eventually rise, then you would want to hold on to the stock. How to Buy and Sell Stock Buying and selling stock is relatively easy. You can buy or sell stock through a fullservice stock brokerage firm, a discount broker, or an online broker. With all varieties of brokers, you usually open an account by depositing a certain dollar amount into it, most commonly between $1,000 and $2,500. Once you open an account, you can begin to trade (buy and sell stock). With a full-service broker, you may call up on the phone and ask your broker to recommend some good stock. Your broker, usually called an account representative, might say that you should buy X, Y, or Z stock. You may ask why these stocks are good ones to buy. He may say that the research department in the firm has looked closely at these stocks and believes they are headed for good times. The analyst’s reasons could be based on the current economic situation in the country, the level of exports, the new technology that is coming to market, and so on. If you do not require help to buy stocks, you can go either to a discount broker or to an online broker. You can call up a discount broker the same way you called up a full- service broker...
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