BASIC INFORMATION ABOUT ITS INFLUENCE ON THE AMERICAN ECONOMY The Stock Market

What is Stock? Def: an instrument that signifies an ownership position (called equity) in a corporation, and represents a proportional share in the corporation’s assets and profits HUH? Basically, buying or owning stock in a company is like buying a small piece of that company. Ex: Susie owns 50 shares of stock in a company that has 1000 shares overall. Therefore, Susie owns 5% of the company

Companies will sell stock to get money for a few reasons:  Invest in research  Hire more employees  Create new products  Enlarge or upgrade their buildings  Improve existing products

What is the Stock Market The Stock Market is a measure of the value of different companies’ stocks  When the prices of stock rise, their value increases  When the prices of stock falls, their value decreases If you owned stock in a company – like Ford – and their value increased, the value of the stock you own would also increase. But, if the company suffered economic hardship, the value of your stock would decrease.  Your stock value is a direct reflection of the value of the company

The Stock Market The value of stocks is often in a fluctuating state The Stock Market serves as an economic indicator – a strong market reveals a strong economy; when the market “tanks”, people begin to worry about he state of the economy External events can influence the Stock Market.  Such as?????

History of the Stock Market Oldest existing stock certificate is from 1606 for a Dutch company involved in the spice industry Most stock business revolved around shipping and spice trades Seat of economic commerce became London – idea of trading stocks came to U.S. with colonists Alexander Hamilton (1 st U.S. Treasurer) believed stock trade was essential to building and maintaining a strong economy

History of the Stock Market Hamilton encouraged people to exchange stock in NYC on the corner of Broad and Wall Streets In 1817, traders organized the New York Stock Exchange at 40 Wall St.

Stock Market Crash  Tuesday, Oct. 29, 1929  The Dow Jones Industrial Average had been at an all- time high, but it was becoming clear that the market was going to contract  There was a rush to sell stocks – the ticker machines and phone lines were jamming, which furthered chaos and the desire to sell  Stock owners who had bought “on margin” (paid only a percentage) found themselves deeply in debt

Why the Stock Market Exists The Stock Market provides a realistic value of stocks in various companies Allows stock holders to track their investments Allows prospective stock buys to make informed decisions about different companies Provides a physical “place” for stock to be exchanged (on the “trading floor”)  Much of this is done via the internet now

DOW NASDAQ Dow Jones Industrial Average An index that shows how 30 large, publicly owned companies have traded during a standard trading session on the stock market Most of the 30 companies no longer have anything to do with heavy industry National Association of Securities Dealers Automated Quotations Has 3,059 listings = 2 nd largest trading market in the world Highest trading volume globally Measures of Stock Strength

Benefits of the Stock Market Instant availability Little possibility of being caught in default Safeguards in place to protect investors from fraud(by the Securities and Exchange Commission)  Not that this DOESN’T happen…. Opportunity to own part of a major corporation Opportunity for economic gain

Risks Involved Ignorance – haven’t studied the market trends or corporation There is a high level of risk involved – there is no guarantee of investment return  Particularly when people invest in “start- up” companies – could strike it rich, could lose entire investment  “Dotcom” Bubble Bursting Fees for buying or trading stock

Other Overseas Markets There are various markets for stock exchange Top 5 – in Trillions NYSE - $16.6 NASDAQ – $8.5 Tokyo - $ 4.1 London S.E. - $4.1 Euronext (Paris)- $3.7

Reading a Stock Table

Bull vs. Bear Market Bull = increased investor confidence; belief in higher future prices Bear = negative feelings with falling stock prices

Bonds Factors that effect yield: - Long term vs. short term - Tax differences - Risk Advantage over stocks: - Less risky - Paid out before stockholders if company suffers

Debt Finance vs. Equity Finance Bonds = debt finance (IOU) Stocks = equity finance (part ownership)