CHAPTER 11 The Stock Market

Section 3: The Stock Market  Objectives:  Evaluate the benefits and risks of buying stock by comparing them to those of investing in bonds  Identify the different systems and markets that allows the trading of stocks to occur  Create an investment portfolio  Describe the events leading up to the Great Depression

So Why Buy Stock?  Who benefits from the stock buying process?  You have $1000 based off of what you know, would you invest in stocks, bonds, or both?  Why is there a potential for greater profit in stocks?

Buying Stock  Dividends  Profits that corporations pay to their stock holders. Usually paid four times per year.  Capital Gain  Selling stock for more than you paid for it.  Capital Loss  Selling stock for less than you paid for it.

Example 1  You buy 300 shares of stock from a company that just went public at $25 per share. How much did that cost you?  You sell your 300 shares of stock at $32.50 per share. How much did you sell them for?  What was your profit?

Example 2  You buy 150 shares of stock in a company that just went public for $30 a share. How much did that cost you?  The market is looking grim and you sell your 300 shares for $25 a share, to avoid losing more money. How much did you sell them for?  What was your profit?

Types of Stock  Income Stock – Pays investors using dividends. These payments vary from company to company.  Growth Stock – Pays little to no dividends, but the investment is used to better the company.  Common Stock – Investors become voting members of the company. One share = One vote  Preferred Stock – Usually none voting members. But receive the dividends before the common stockholders.

Splitting Stock  Owners of common stock sometimes vote to split the stock that their company owns.  This process doubles the amount of shares in a company and halves price of each share.  Why would a company want to do this?

What would you do if you couldn’t get your money out of the bank? (assuming you had it in the bank) How would you pay for food/bills? What if you couldn’t get a job?

Review

Measuring Stock Performance  Bull Market  When stock prices continuously rise over a period of time  Bear Market  When stock prices continuously fall over a period of time

The Dow Jones Industrial Average (DJIA)  Intended to represent the average of 30 different “blue chip” companies. Why aren’t companies like Apple and Google a part of this? The S&P 500  The Standard & Poor’s 500 tracks the changes of 500 of some of the highest performing companies in the world. Which do you think gives a more accurate view of the stock market? Why?

 The New York Stock Exchange  Located on Wall Street this building acts as an auction trading house for brokers and stock specialists  The NASDAQ  Founded in the 1970s the National Association of Securities Dealers Automated Quotation acts as the electronic counterpart to the NYSE

The Great Depression Causes? Buying on Margin Over speculation of stocks and industry

Answer the following questions on a separate sheet of paper.  What kind of scene does this article paint in your mind? Why?  When the author says “the bottom simply fell out of the market” what does he mean?  Who do you think “the ticker” is, and why is he significant?  Search for as many instances where the author gives animalistic qualities to the market as possible.  Why do you think the author gave the market animalistic qualities to begin with?