Welcome to Wall Street Understanding the Stock Market/Welcome to Wall Street   Learner Objectives: Understand the role of stock in our nation’s growth Learn how to read and understand the financial section of the newspaper Learn the difference between common and preferred stocks Learn how a stock market works Become aware of the Pros and Cons of Stock Ownership Publication: Saving and Investing Today—For Tomorrow (2003) http://www.ext.nodak.edu/extpubs/yf/fammgmt/fe258w.htm Other resources: http://www.younginvestor.com/parents/investIt/ http://www.ameritrade.com/education/html/encyclopedia/tutorial1/ Five Steps to Take Before Investing: http://moneycentral.msn.com/content/investing/startinvesting/p33734.asp Roll Call Ideas and Activities: Stock Market Tracking Activity (use for all three 2004-2005 lessons) Good News Bears Lotto (http://archive.ncsa.uiuc.edu/edu/RSE/RSEyellow/lotto.html Risk Tolerance Quiz Before the Program Read through all materials. Decide what you will cover. Highlight those areas. Make or borrow presentation materials from the county office. Order or pick up quantities of the handouts you will use. Make copies of the activities you will use. Decide on a roll call idea. The Program This is a basic introduction to Wall Street and the U.S. stock market. Participants will be at different levels of understanding. Try to pick out the facts that fit both your time frame and your participant knowledge level.

What is Wall Street? Introduction On February 2, 1653, the town of New Amsterdam, founded on the southern tip of Manhattan Island in 1625, was incorporated as a city under a charter issued by the Dutch West India Company. A Council of Legislators sat as the local lawmaking body and as a court of inferior jurisdiction. The first significant action of the Council took place on March 13, 1653, when, led by Director General Pieter Stuyvesant, a decision was made to construct a Wall from river to river at the northern edge of the city. Over the next 350 years Wall Street has became one of the most famous streets in history, and a truly defining aspect of New York.   Although we are all familiar with the term "Wall Street", what does it really mean? Wall Street is a street in New York City on Manhattan Island. Although its history dates back 350 years, it has become the not only the hub of the American financial industry but a global marketplace. Today the term Wall Street is synonomous with the stock market. The ups and downs of the stock market make the national news daily, and most people know someone who has made—or lost—money in the stock market. This is not surprising because individual investors have traditionally been the major owners of common stock. Most experts agree that, over the long haul, stocks have outperformed other investments. In the period from 1936 to 1985, small company stocks gave an average return of 12.6%, common stocks 9.8%, long-term corporate bonds returned 4.8%, and U.S Treasury Bills (T-bills) returned 3.4%. Keep in mind that these figures are for a 60 year period, during a shorter term the return would have fluctuated greatly.

What is stock? Ownership in a company Classes of stock Dividends Stock prices/quotes   Stock is ownership in a company, with each share of stock representing a tiny piece of ownership. The more shares you own, the more of the company you own. The more shares you own, the more dividends you earn when the company makes a profit. In the financial world, ownership is called equity. There are two primary classes of stock. The one you choose depends on what you want from a stock. Preferred stock typically pays regular dividends and is favored by investors who want income foremost from their stocks. Common stock represents ownership of a company and may offer more rights and privileges than preferred stock. Investors may purchase stock on the primary or secondary market. A company sells its stock to the public on the primary market through its initial public offering. Investors may sell their shares through brokers to other investors on the secondary market. The secondary market can be structured as an auction market, like the other exchanges, or a dealer market, like the NASDAQ. Stock prices can be found (quotes) in newspapers, on television and the Internet.

Why do companies issue stock? Expansions Equipment Projects Businesses issue stock to raise money. They use this money to finance expansions, pay for equipment, and fund projects, etc. Corporations issue stock when they may need additional capital to operate successfully. The fancy term for issuing stock to raise money is equity financing. The money received from investors who buy stocks is called equity capital. In the world of securities, the word "equity" usually refers to stocks. The other method of raising money is debt financing, which involves selling bonds. When companies make profits, they may reward their stockholders with pieces of their profits, known as dividends. Dividends are an incentive for investors to hold stocks. Now that you know the why of buying stocks, you will need to know the where.

What is the Stock Market? Primary Market Stock Exchanges Over the Counter Market Secondary Market The primary market is the market in which investors have the first opportunity to buy a newly issued security. Stock exchanges are the physical locations where stocks are bought and sold. They are the primary market for stocks, and the sisters of the over-the-counter (OTC) market. The OTC refers to a market in which securities transactions are conducted through a telephone and computer network connecting dealers in stocks and bonds, rather than on the floor of an exchange. Together, these two markets form the secondary market. The primary and secondary markets together make up the stock market. Exchanges are located all over the world, with the most famous one being the New York Stock Exchange. The NYSE annually trades almost $12 trillion dollars worth of capital. Thousands of stocks are listed on this exchange. When you buy a stock, you will need to learn which exchange(s) list it. Other than locating a quote in the newspaper, with online trading and the automation of order systems, there is very little reason to determine where the stock trades from the customer's viewpoint. The Securities and Exchange Commission (SEC) regulates stock trading and exchanges. Additional regulation is administered by The National Association of Securities Dealers (NASD). The NASD makes and enforces rules for its members and enforces federal securities acts and the SEC makes rules for its membership. As you learn more about investing, you will become more familiar with these organizations and their protective regulations.

Risk and Returns on Common Stock holding period yield (HPY) HPY = Dividends + Price Change                  Purchase Price  Determining the return on stock for any particular period involves determining both the capital gains or losses and the dividends. Capital gains or loss is the difference between the amount you paid for the stock and the current sale price. Dividends are the periodic payments received by stockholders determined by the board of directors. These payments can range from zero to any amount the company can afford to pay, and there is no guarantee you will receive dividends. The holding period yield (HPY) measures the return on stocks over a period of time. The formula is as follows: HPY = Dividends + Price Change                  Purchase Price  For example, if you bought 100 shares of XYZ stock at $20 a share one year ago. You received a total of $.50 per share quarterly dividends, and the price of the stock has risen to $22 per share. Your holding period yield would be: Dividends = $.50 x 4 = $2.00 per share per year Price Change = $2 HPY = $2.00 + $2.00/purchase price =$4/$20 = .20 HPY = 20.0 percent per share

Understanding a Stock Table   A stock table provides you with valuable information about stock values. Here is an example of a table that could be found in the financial section of a major newspaper such as The Wall Street Journal. The Wall Street Journal is not the only newspaper that provides information on the stock market; many other local and national newspapers also provide this service. However, the information is usually presented in a similar manner.

The Dow Jones Industrial Average 30 Industrial Stocks Matching Game (Optional) The world's best known stock indicator, the Dow Jones Industrial Average, is and index based on the 30 industrial stocks representing every important sector in the stock market (except transportation and utilities), which respond to every important factor in the economy. For a history of the Dow Jones, see http://www.cftech.com/BrainBank/FINANCE/DowJonesAvgsHist.html

Understanding the Stock Market Why companies sell stocks Where to purchase How to follow Are stocks right for you? (Optional Stock Market or Mutual Fund Tracking Activity may be introduced here.) This lesson has included information on the role of stock in our nation’s growth, how the stock market works, the difference between common and preferred stocks, and some of the pros and cons of stock ownership, and how to read and understand the financial section of the newspaper. If you find you would like to learn more about investing, you may find the “Starting an Investment Club” lesson useful.