Transcript Stock Market 101

Stock Market 101
_________________________
Chapter 14 – The Great
Depression Begins
School House Rock: Walkin' On Wall Street
 How can you legally make money
without working?
 Some thoughts:
 Lottery
 The
Stock Market
 Mail sweepstakes
 Game shows
 Local store or restaurant games
(McDonald's Monopoly game)
 Bank accounts (Interest)
 Most bank savings programs have
yearly interest rates of 3-5%
 However, in the stock market,
returns can be 9-12%!
The New
York Stock
Exchange
(NYSE)
What are stocks?
 Stocks are units of ownership in a company.
On The floor of the NYSE
Why are stocks sold?
 Companies sell stock to get money so they can
do things like —
 Research
better ways to make things
 Create new products
 Improve the products they have
 Hire more employees
 Enlarge or modernize their buildings
 Just as the federal government sells bonds to
raise money, businesses raise money by selling
stock.
Ringing the bell at the NYSE
How
does
it
work?
 When you buy stock, you become a
shareholder, which means you now own
a "part" of the company.
 If the company's profits go up, you
"share" in those profits. If the company's
profits fall, so does the price of your
stock.
 If you sold your stock on a day when the
price of that stock falls below the price
you paid for it, you would lose money.
What to Know Before You
Invest
Stock Prices Can Rise and Fall
 In the stock market, prices rise and fall
every day.
 When you invest in the stock market, you
are hoping that over the years, the stock
will become much more valuable than
the price you paid for it.
Be Patient
 Most experts will tell you that putting
money in the stock market is a long-term
approach to making your money work for
you.
 Remember: people who succeed in the
market typically let their stocks grow for
15 or more years.
Safety
 With stocks, there's no FDIC (Federal
Deposit Insurance Corporation) to protect
you against losses.
 No compound interest.
 You're on your own.
 Your stock can rise like a rocket or drop
like a stone — or grow steadily.
Liquidity
 You can sell your stocks at any time. BUT
when you sell, you sell them for what they
are worth at that moment.
 If that's more than you paid for them,
you've earned money. If the price of your
stocks has fallen below what you paid for
them, you'll be losing money if you sold
them that day.
 When you sell your stocks, you will get a
check in the mail a few days after the sale.
No Interest
 With stocks, there's no such thing as
interest.
 Instead, when stocks are doing well,
investors receive dividends.
Dividends
 Dividends are paid according to how
many shares you own — for example, a
dollar a share.
 Dividends can be paid in cash, but they
can also be "paid" in the form of
additional stock that is automatically reinvested in the company.
 Dividends are usually paid quarterly.
Appreciation
 If your stock appreciates, that means the
price of your shares (units) rises in value.
 So each share of your stock is worth
more than it was before.
 Companies and shareholders want stocks
to appreciate, but only up to a point.
Example
 You buy 100 shares of Wal-Mart stock at
$10 per share. How much did you pay?
 $1000
 You sell your 100 shares of Wal-Mart stock
at $20 per share. How much do you sell it
for?
 $2000
 What is your profit?
 $1000
Splitting
If shares cost too much, they are less attractive

to people shopping for good stock.
 As a shareholder, you want to encourage more
people to buy shares of your stock. The
company feels the same way.
 So when a stock has reached a high dollar
value, the company may split the shares,
lowering the per-stock price and encouraging
more investors to buy.
 Splitting actually means reducing a stock's
price but increasing the number of shares each
shareholder owns.
Example
 You bought 100 shares of Google stock at
$30 per share. How much did you pay?
 $3000
 Today they are worth $60 per share. How
much is the stock worth today?
 $6000
 What is your profit?
 $3000
Example
The company decides to split the shares two-for-one.
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How many shares do you now own?
200
How much is each individual stock worth?
$30
What is the total worth of these shares?
$6000
The amount of your investment hasn’t changed. True,
your shares are only worth half their former price, but
you now own twice as many shares. By splitting, the
company has made shares affordable again.