Transcript The Stock Market - Social Studies

The Stock Market
ECONOMICS-AUWERS
Introduction
 Essential Questions:
 What is the Stock Market?
 How does it work?
 Why is it important to the United States economy?
What is it?
 “The center of our Nation's economy does not rest at Fort
Knox with its millions of dollars worth of gold, or even
the Treasury that prints the money that you use. At the
center of the United States economy is Wall Street.
Almost every large company in the US and around the
world is traded on a Stock Exchange; from McDonalds to
Lockheed Martin… Even if you have no money in the
stock market, or are in school, the stock market does
affect you. It affects everything you do, from going to the
mall, to buying that new outfit you have always wanted.
After all, Calvin Klein has to get money to make those
outfits!”
http://library.thinkquest.org/3088/stockmarket/thebeginning.html
How did it start?
 “ …it started out as dirt path in front of Trinity Church in East
Manhattan 200 years ago. At that time, there was no paper
money changing hands, or even the idea of stocks. Rather,
they traded silver for papers saying they owned shares in
cargo, that was coming in on ships every day. The trade
flourished.
 During the American Revolution, the Colonial Government
needed money to fund its wartime operations. One way they
did this was by selling bonds.
 Along with bonds, the first of the nation's banks started to sell
parts or shares of their own companies to people in order to
raise money. In essence they sold off part of the company to
whomever wanted to buy it, which is the essence of the
modern day stock market.”
http://library.thinkquest.org/3088/stockmarket/thebeginning.html
How did it start? continued
 “Wall Street was becoming a major center of these
transactions, and in 1792 twenty-four men signed an
agreement that started the New York Stock Exchange
(NYSE). They agreed to sell shares or parts of
companies between themselves and charge people
commissions, or fees, to buy and sell for them. They
found a home at 40 Wall Street in New York City. As
they grew they later moved into what is currently the
New York Stock Exchange Building.”
Industrial Revolution
 “The 1900s brought the Industrial Revolution, and along
with it, a boom in Wall Street. Everybody wanted a piece
of the action, and Wall Street grew. The New York Stock
Exchange was not the only way to buy stocks at that time.
Many stocks that were deemed not good enough for the
NYSE, were traded outside on the curbs. This so called
"curb trading," has now become the American Stock
Exchange (AMEX).
 Today, the New York and the American Stock Exchanges,
have been joined by the NASDAQ, and hundreds of local
and international Stock Exchanges, that all play a part in
the national and global economy. ”
How it works…
 When you want a stock, you call a broker. The broker
calls a person on the floor (usually an employee of the
broker). This person runs to the space that is allotted to
this stock. He then buys the amount of stock from the
specialists, or companies, that are there to sell and buy
on a regular basis. He then tells the firm he bought it,
and then you have your stock.
 Alternatively, you do your own research and purchase
stock “on-line” through your bank or one of the many online companies that purchase your stock for you at a
much lower cost. The risk is YOU are not the expert.
 What Makes Us Tick you tube
Honesty in the Market Place
or why Martha Stewart went to jail
 “…to keep brokers honest, the government has put into place many
commissions, and organizations. Of these organizations the major
player is the Securities Exchange Commission (SEC).
 The SEC is a government agency whose purpose is to regulate the
securities industry (the stock markets). It was created after the Great
Depression when Congress passed the Securities Exchange Act of 1934.
 This agency decides what is legal, and prosecutes those who break the
rules, along with setting many standards for brokers and investors
alike. All companies traded on the many stock exchanges across
America have to be registered with the SEC. Each must follow rules
about what they can do with their stock, how they can advertise, and
much more.”
Stewart was convicted of selling almost 4,000 shares of ImClone Systems on Dec. 27, 2001, after being
tipped that former ImClone CEO Sam Waksal was trying to dump his own shares in the company.
Waksal is a friend of Stewart.
Prosecutors said Stewart and her former stock broker, Peter Bacanovic, then tried to cover up the
reason for the trade. Bacanovic also received a five-month prison sentence on Friday.
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http://library.thinkquest.org/3088/stockmarket/thebeginning.html
How to diversify…Mutual Funds
 Open mutual funds let people put their money in them, just like a bank.
When you put your money in a mutual fund, they take that money, along
with that of millions of other people who are investing, and buy stocks and
bonds with it. They then take out part of the profits for themselves, a
commission, and give you your share.
 Closed end mutual funds, are similar to their open counterparts in that you
turn over control of your money to professionals but, rather than putting
money in them like a bank, you buy shares like a stock. This means that a
closed end mutual fund acts just like any other stock on the Stock
Exchange, they have Ticker Symbols, and are traded. The difference is that
these mutual funds, instead of making burgers, or creating airplanes, take
the money they have, invest it, and return the profits to the share holders”
through diversification…
 In class you will create a mutual fund based on your teams
recommendations…you will create a closed end Mutual Fund and
compete against the other economic classes this semester to see which
mutual fund was the most sucessful.
What to watch for when choosing your stocks…
 “ A stock is only worth what someone will pay for it.
Usually, if a company makes a lot of money, its value
rises, because people are willing to pay more for a
company's stock if the company is doing well.
 There are many other factors that affect the value of
stocks. One example is interest rates, or the amount of
money you have to pay a bank to loan money, or how
much it has to pay you to keep your money in their bank.
 If interest rates are high, stock prices generally go down,
because if people can make a decent amount of money,
by keeping their money in banks, or buying bonds, they
feel like they should not take the risk in the stock
market.”
What to watch for?
 Many other factors have an effect on the stock market- for example,
the state of the economy. If there is more money floating around,
there is more flowing into companies making their prices rise. Yet
another factor is time of year, and publicity. Many stocks are
seasonal, meaning they do well during certain parts of the year, and
worse during others.
 An example is an ice company, the ones that package ice that you
buy at the supermarket. During the summer, with picnics, and
sweltering heat, their product sells well, and thus their stock price
goes up; But during the winter, when people are not as interested in
a picnic with 20 below temperatures, their price goes down.
 Publicity has an effect on stock prices. If an article comes out saying
that company ABC, has just invented this new type of ice that will
revolutionize the industry, odds are their price will increase.
Conversely, if an article comes out saying that company ABC's
president is a crook, and stole the pension funds, it is a good bet
that the price will go down.
Trends…What do you see?
symbol
5 year chart…
Glossary of terms
 52 weeks high and low This field is a good indicator about a
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stocks volatility. Volatility is an indicator of the riskiness and potential for
profit that the stock has. The greater the difference between the high and
low, the riskier the stock is for loss and gain. If the difference between the
high and low is small, then there is little potential for either loss or gain.
Company name - This field is usually abbreviated in the listings, and
listed alphabetically.
Symbol - This field is a one to four character symbol used as a sort of
nickname for the company.
Dividend - This field is listed in dollar format, and it is the cash amount of
money that the company will pay you each year for each stock.
Percent yield - This field is calculated by dividing the dividend by the
closing price. It just tells you how much of the price of the stock you will be
paid in dividends each year.
PE ratio - The price-earnings ratio calculates the relationship between the
price of a company's stock, and the annual earnings of a company. It is
calculated by dividing the closing price of the stock by the earnings per
share of each stock.
Glossary of terms
 Volume - The volume is the amount of stocks that were traded the day
before. This number is given in hundreds, so to get the actual number of
stocks traded, multiply the number in that field by one hundred. If a
small z is before the number, then the volume is not given in hundreds, and
is the actual number of stocks traded.
 High, low and close - These are the highest and lowest prices of the
stock the day before, and the closing price for the day before. This is an
indicator of how much the price of the stock fluctuated throughout the
previous day.
 Net change - This is the change of the price of the stock from the previous
day. This gives you an idea whether the price is dropping or rising.
 In addition to the stock listings, stock price charts can sometimes offer a
better view of how the stock is doing. The price charts graphically organize
the value of the stock over time. The charts can give you information on the
company's historical performance, the stock's stability or volatility, the
stock's current price relative to the past, and the stock's growth rate.