Today’s Schedule – 11/6 PPT: Stock Market Instructions: Playing the stock market HW: – Stock market simulation summary- 1/10

What is a Stock? Another means for a publicly traded company to make profit Stock are sold in “shares” which is a portion of a stock – Become “equities” which are claims of ownership in a corporation

Why Buy a Stock? Potential to make “dividends” which is a profit – The higher the company’s profit, the higher the dividend Ability to sell the stock for more than it was purchased for and make “realized capital gains” – Buy when price of a stock is low – Sell when price of a stock is high

Types of Stocks 1.Income stock: stock pays dividends regularly throughout the year 2.Growth stock: reinvesting earnings in the business instead of paying dividends

Types of Stocks 3.Common stock: investors who are voting owners of the company- possible to control the company 4.Preferred stock: investors who don’t vote, but receive dividends before common stock owners

Trading Stocks In order to trade stock you want to use either: – Stockbroker: A person who links buyers and sellers – Brokerage firms: Businesses that specialize in trading – Both make profit by charging a commission/fee on each transaction

The Stock Exchange The market where stocks are bought and sold 1.The New York Stock Exchange (NYSE) -Oldest and most powerful stock exchange in U.S. -Only the largest and best known companies trade on the NYSE who are called “blue chip companies” -Companies have to buy seats on the NYSE -Investors expect these companies to stay profitable for a long time

The Stock Exchange 2. OTC Market (“over the counter”)/Electronic Trading -Investors buy directly from a broker 3. NASDAQ -Second largest market in the U.S. -Handles the OTC market -No actual trading floor

The Stock Exchange 4. Daytrading -Buying/selling stocks minute by minute rather than holding onto investments for a time -High risk

Measuring Performance of Stock Bull market- steady increase over time – Investors buy stock expect return Bear market- fall in market for a period of time – Investors sell stock expecting to loose profits Ideal scenario- buy just at the start of a bull market and sell just at the start of a bear market

Measuring Performance of Stock Dow Jones Industrial- Index that shows how stock are being traded Standard & Poor’s 500 (S&P)- Shows the price changes in 500 different stocks

Stock Market Today 10/18/87 “Black Monday”- stock fell more than in 1929, but rebounded quickly Between 1995 and 2000, the S&P 500 index rose 226 percent, an annual rate of 25 percent! This is by far the largest stock market boom in U.S. history. This boom added $14 trillion to household wealth, about $2.5 trillion per year.

Stock Market Today The stock market boom cannot be explained by a large fall in interest rates, higher profits, or a fall in the perceived riskiness of stocks. This led many people to the view that it was simply a bubble. Millions of lives were affected by the euphoria of the boom and the “correction” that followed

Stock Market Today The value of stocks increased by about $2.5 trillion per year during the boom.

Stock Market Simulation- How it Works You place the order with your broker to buy 100 shares of the Coca-Cola Company. The broker sends the order to the firm's order department. The order department sends the order to the firm's clerk who works on the floor of the exchange where shares of Coca-Cola are traded (the NYSE).

Stock Market Simulation- How it Works The clerk gives the order to the firm's floor trader, who also works on the exchange floor. The floor trader goes to the specialist's post for Coca-Cola and finds another floor trader who is willing to sell shares of Coca-Cola. The traders agree on a price. The order is executed.

Stock Market Simulation- How it Works The floor trader reports the trade to the clerk and the order department. The order department confirms the order with the broker. The broker confirms the trade with you.