The Stock Market

The Stock Market

Bulls and Bears!

Open Ended

Do Now: What do you already know about the stock market??

Open Ended

After watching the video, What do you now know about the stock market??

What To Do With Income?

• Pay taxes

• Spend it (consume today)

• Save it (delay consumption to future)

• Invest it

– Using money you have saved to purchase a

product that will create benefits in the future

– Saving and investing involves trade-offs

Saving and Investment

• Saving

– Not consuming all current income

– Examples: Savings Account, Certificate of Deposit

• Business Investment

– Production and purchase of capital goods

– Examples: machines, buildings and equipment that

can be used to produce more goods and services in the future

• Personal Investment

– Purchasing financial securities

– Examples: stocks, bonds, real estate, mutual funds

– Pay a higher rate of return in the long run than the

interest paid on savings accounts.

Stock

• Aportion of ownership in a corporation. It

is a way for a corporation to raise money.

• Also known as shares or equities.

Multiple Choice

What is a stock?

• A type of fruit that grows on trees
• A type of security that signifies ownership in a corporation
• A type of currency used in foreign exchange markets
• A type of clothing item worn by cowboys

Why buy stocks?

Stockowners can earn a profit in two ways:
1.

Dividends: portions of a corporation’s
profit. They are paid out to stockholders
of many corporations every quarter (3
months).

2.

The higher the corporate profit, the
higher the dividend. If a corporation
makes no profit, there is no dividend.

Making money in the Stock Market

• Capital Gain: When a stockholder sells

stock for more than he or she paid for it.
Ex. I buy a share of Kodak stock for $20.
The value of the stock increases to $21,
and I sell it for a profit of $1.

• When a stockholder sells stock for less

than he or she paid, it is a capital loss.

Stock Goes Up and Down

• Stock value increases and decreases

according to the company’s performance
and how people think the company will do
in the future.

• Stock value goes up when a company

has good sales or invented a new product.

• Stock value goes down if a company has

to lay off people, doesn’t sell much or does not make a profit.

Multiple Select

Which of the following means a company's stock price will go up?

• They Invent a new Product

• Positive financial performance
• They merge and take over another company

• They go broke and lose all of their money

Multiple Select

How do we know a company's stock is going to go down?

• The Company is caught committing a crime

• They raise millions of dollars

• The company starts to lay employees off

• Their new product does not sell as much money

Making and losing money

Can you lose everything in the market?
• If you are foolish, yes. If you invest more

than you can afford to lose, and the stock loses value, you are in trouble.

• But, if you invest only what you can afford,

and diversify your investments (buy stock of many different companies), you can do very well. If you diversify, even if one investment loses money, the others will still be okay. And, stock prices go up and down a lot. If you lose money today, the stock can still go up tomorrow. You only lose if you sell!

Multiple Choice

Why is it important to diversify you stocks?

• To increase potential losses
• To put all your eggs in one basket
• To spread risk and minimize potential losses.
• To limit potential gains

So how do I make money?

• The common stock strategy is to invest

over the longterm.

• Diversify your portfolio (buy different

stocks) and let the stock price increase
over time. Even if stocks go down, it is
okay- just wait until they go back up. The
market as a whole always historically goes back up.

• Some people play the market like a

casino; they gamble on quick money. They may get lucky, but it is VERY RISKY!

Multiple Select

What are the best ways to make money through the stock market?

• Following stock tips from social media influencers
• Investing for the longterm

• Investing in well-researched diverse, high-quality companies for the long term

• Day trading volatile stocks for quick profits

Types of Stock

• Income Stock: stock that pays dividends at

regular times in ayear

• Growth Stock: pays few to no dividends.

All profits are reinvested in the business.
Owners of growth stock are interested in making money through capital gains.

• The company determines what stock it

offers.

Blue Chip Stocks

• Largest most consistently profitable

companies that usually pay dividends

– Coca-Cola

– General Electric

– McDonald’s

– Exxon-Mobile

– Wal-Mart

– Gillette

– Apple

– Meta (Facebook and Instagram)

– American Express

Multiple Choice

Why are these companies considered "Blue Chip"?

• Because they are stable, financially sound, and well-established.
• Because they are heavily in debt
• Because they are small and struggling
• Because they are new and innovative

Ownership of a Company

• Stockholders are part owners of the

company, and as such have a say in decisions the company makes. But, since
most companies have thousands of
shareholders with millions of shares, most
stockholders have little say in the
company.

• Controlling Share: Owning 50% of a

company’s stock. This person controls the company.

Making ownership decisions

• Common Stock: stockholders are voting

owners of thecompany.

• But, most people own such a small

percent of a company’s shares, they do not wish to vote on company decisions.

• Preferred Stock: stockholders do not vote

in company decisions, but receive
dividends before owners of common stock.

Multiple Choice

If you had to guess, what kind of stocks will we be investing in?

• Common Stocks

• Preferred Stocks

Where are stocks traded?

• Stock Exchanges: markets where

businesses buy and sell stock. Most
industrialized nations have one. The U.S.
has several.

• In the U.S. the two largest are The New

York Stock Exchange (aka. Wall Street),
which represents the oldest and largest corps. in the country. The NASDAQ in Chicago represents newer companies.

Multiple Choice

What is a stock exchange?

• A form of government
• A marketplace where stocks are bought and sold

• A place to buy groceries
• A type of currency

How are stocks traded?

• Stockbroker: licensed intermediary

between buyers and sellers of stock

• Brokerage Firms: businesses which

specialize in trading stock.

• Daytrader: stockbrokers who buy and sell

large amounts of stock very quickly to turn a profit in one day’s trading. (get it?)

Bull and Bear Markets

• Economists describe the stock market

activity as being a:

– Bull Market: steadily rising stock market

over time

– Bear Market: steadily falling stock

market over time

Stock Performance Indexes

• With thousands of publicly owned

corporations, selling billions of shares of
stock, it is impossible to keep track of how
the market is doing as a whole. Stock
Performance Indexes are used to look at
parts of the stock market to make a
generalization about the market as a
whole.

Two Stock Performance Indexes

The Dow Jones Industrial Average
• The Dow is an index that shows how 30

companies in various industries change in value from day to day.

The S&P 500
• The S&P is an index that tracks the

performance of 500 different stocks.

• By watching the indexes, we can tell if it is

a Bull or Bear market, and when to invest or not!

Multiple Choice

How can Performance Indexes help us choose of stocks?

• By asking a fortune teller for advice
• By flipping a coin and choosing randomly
• By selecting stocks based on their company name
• By evaluating the historical performance of stocks and comparing them to other stocks or benchmarks.