FUN FACTS  11% of the world is left handed  400 Quarter Pounders can be made from a single cow  Native Americans used to name their children after the first thing they saw as they left their tepees after their children were born, hence the names Sitting Bull and Running Water  The Matami Tribe of West Africa play their own version of football, instead of a normal football they use a human skull

THE STOCK MARKET Unit VIII: Savings, Investment, and Insurance Lesson Three

SELLING STOCKS  Companies that wish to raise funds for growth can borrow money or sell shares (stock) of their company  To issue stock, firms generally go to investment banks that put together a prospectus with information for potential investors, help determine the market price of the offering, and issue the stocks in the primary market  This provides businesses with funds to finance growth

PRIMARY MARKET  The primary market is the market where securities are created  It's in this market that firms sell (float) new stocks and bonds to the public for the first time  Synonymous with an initial public offering (IPO)  An IPO occurs when a private company sells stocks to the public for the first time  Securities are purchased directly from an issuing company

SECONDARY MARKET  The secondary market is the "stock market"  This includes the New York Stock Exchange (NYSE), Nasdaq and all major exchanges around the world  Defining characteristic: investors trade among themselves  Investors trade previously issued securities without the issuing companies' involvement  For example, if you go to buy Microsoft stock, you are dealing only with another investor who owns shares in Microsoft. Microsoft (the company) is in no way involved with the transaction  The secondary market can be further broken down into two specialized categories: auction market and dealer market

SECONDARY MARKET  In the secondary market, for every buyer there must be a seller  If not, a specialist will match buy an sell orders for a particular stock  Buyers and sellers may work through a local broker who works through a floor broker at the stock exchange, or they may place orders for trades online  In either case, a commission is charged to pay the costs of the brokerage firms and the stock exchange

AUCTION MARKET  All individuals and institutions that want to trade securities congregate in one area and announce the prices at which they are willing to buy and sell  Theoretically, the best price of a good need not be sought out because the convergence of buyers and sellers will cause mutually-agreeable prices to emerge  The best example of an auction market is the New York Stock Exchange (NYSE)

DEALER MARKET  Does not require parties to converge in a central location  Participants in the market are joined through electronic networks  Dealers hold an inventory of the security in which they "make a market"  Dealers then stand ready to buy or sell with market participants  Dealers earn profits through the spread between the prices at which they buy and sell securities  Theory that competition between dealers will provide the best possible price for investors

WHERE TO BUY STOCKS AND BONDS  Full-service brokerage firms:  Give investment advice  Offer a wide variety of financial products and services  Charge higher commissions  Discount brokerage firms:  Do not give investment advice  Offer a limited number of financial products and services  Charge lower commissions

WHERE TO BUY STOCKS AND BONDS  Buying Online:  Quick and simple access with low commission rates  Buyers can more easily compare brokerage services  Dividend reinvestment plans (DRIPS):  Many large companies offer DRIPs  Stockholders are paid dividends in the form of stock (no commission)

PROFITS  When companies make profits, they may keep the profits to help them grow or they may share the profits with shareholders in the form of dividends  Shareholders can make money through dividends or through capital gains  A capital gain occurs when one sells a share for more than one paid for it

BULL MARKET  A Bull Market is a financial market of a group of securities in which prices are rising or are expected to rise  The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities  Bull markets are characterized by optimism, investor confidence and expectations that strong results will continue  It's difficult to predict consistently when the trends in the market will change  Part of the difficulty is that psychological effects and speculation may sometimes play a large role in the markets.

BEAR MARKET  A bear market is a financial condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining  As investors anticipate losses in a bear market and selling continues, pessimism only grows  Although figures can vary, for many, a downturn of 20% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market  Bear markets rarely provide great entry points, as timing the bottom is very difficult to do