THE STOCK MARKET The stock market/exchange is a secondary market where securities (stocks and bonds) are bought and (re)sold → stock is sold as individual shares in corporations, which are known as public companies (as opposed to private companies, whose owners retain control over their businesses)

THE STOCK MARKET → shares represent ownership (one share = one vote): shareholders vote for a board of directors, which hires corporate officers to run the business

THE STOCK MARKET When a private company wishes to become a public company, it is said that it is ‘going public’ and it will issue an ‘ipo’ (initial public offering) on a specific date → private companies go public in order to raise funds to expand, give limited liability to the owners, and unlimited life to the company

THE STOCK MARKET → disadvantages of going public include difficult and expensive start-up costs, heavy regulation by the Securities and Exchange Commission (SEC), and loss of control for original owners

STOCK INVESTING A specific company’s stock is listed (sold) on a specific stock exchange; the two most prominent in the U.S./world are the New York Stock Exchange (NYSE) and NASDAQ → located on Wall Street in New York, the NYSE is the oldest and largest of U.S. stock markets; stock is sold both on auction on its floor and electronically

STOCK INVESTING → NASDAQ is a so-called over-the-counter (OTC) exchange that uses a centralized computer system to make trades; most modern technology companies are listed on NASDAQ

MEASURING THE MARKET A stock index is a measure of the change in prices for a specific set of stocks, which is meant to provide a snapshot of how the entire market (and to a certain extent, ‘the economy’) is performing → the best known index is the Dow Jones Industrial Average (‘The Dow’); which tracks the stocks of 30 ‘blue-chip’ (large and successful) companies

MEASURING THE MARKET → critics of the Dow say that 30 companies is too few to actually reflect the entire economy; thus, they say the Standard & Poor 500 (S & P 500) which tracks 500 companies is more representative

MEASURING THE MARKET Stock indexes can be used to help determine whether the market is currently experiencing a bull market or a bear market → a bull market refers to a time when stock prices (on average, thus not necessarily every companies stock) are rising; while a bear market occurs when stock prices are steadily falling over time

BUYING STOCK Stock is not purchased directly from company or exchange, it is bought using a broker, who is paid a commission to buy and sell on behalf of customers → brokers mostly carry out customers instructions, but may also offer advice (for a fee) ; they can’t be accessed in person or online

BUYING STOCK There are basically two ways to make money once you’ve purchased stock: capital gains and dividends 1. Capital gains simply refers to selling shares at a higher price than you bought them → buy low/sell high (value stocks) and/or buy high/sell higher (growth stocks) 2. Dividends are a share of a corporation’s profits that are paid back to the corporation’s shareholders (not all companies issue dividends – those that do are known as income stocks, those that don’t are growth stocks)

TYPES AND CHARACTERISTICS OF STOCK Stock can be categorized by whether or not they give shareholders voting rights 1. Common stock gives shareholders ownership and voting rights 2. Preferred stock gives shareholders ownership, but not voting rights…in return they get preferential treatment over common stockholders in terms of dividend payments

TYPES AND CHARACTERISTICS OF STOCK When researching individual stocks you will be able to find a virtually endless amount of information – the following represents some of the most common and useful Ticker symbol → 2/3-letter (NYSE) or 4-letter (Nasdaq) company abbreviation Stock Exchange → for U.S. stocks, usually either NYSE or Nasdaq Current Trade Price/Amount Change/% Change → $ amount per share/+/- $ amount since beginning of the day/ +/- % amount since the beginning of the day) Previous Close → price of stock at the end of the previous day’s trading (4 PM EST) Day’s Range → lowest and highest prices for the day 52-Week Range → lowest and highest prices for the past 12 months

TYPES AND CHARACTERISTICS OF STOCK Volume → # of that company’s shares bought and sold that day Market Cap → that company’s total value: total # of shares X share price Dividend → $ amount of dividend paid per share annually Yield → % relation between stocks current price and dividend: dividend/share price

STOCK SPLITS A stock split occurs when a company believes its share price is too high and wants to make it more affordable to small investors → in a 2-for-1 split, a company with 10,000 total shares now has 20,000 total shares; an investor with 50 shares in that company now has 100 shares → at the same time that the # of shares doubles, the price is cut in half (a $30 share becomes a $15 share); thus the total value of the company and the total value of each investor’s investment stays the same

STOCK SPLITS → usually immediately after a split the share price starts increasing as more people begin responding to the lower price, pushing up demand * In June 2014, Apple Inc. split its shares 7-for-1 to make it more accessible to a larger number of investors. Right before the split, each share was trading at $645.57. After the split, the price per share at market open was $92.70, which is approximately 645.57 ÷ 7. Existing shareholders were also given six additional shares for each share owned, so an investor who owned 1,000 shares of AAPL pre-split would have 7,000 shares post-split. Apple's outstanding shares increased from 861 million to 6 billion shares, however, the market cap remained largely unchanged at $556 billion. The day after the stock split, the price had increased to a high of $95.05 to reflect the increased demand from the lower stock price.