The Stock MarketThe Stock Market

1.1. Understand the risksUnderstand the risks2.2. Describe how stocks are tradedDescribe how stocks are traded3.3. Identify how stock performance is Identify how stock performance is

measuredmeasured4.4. Explain the causes and effects of Explain the causes and effects of

the stock market crash in 1929the stock market crash in 1929

Buying StockBuying Stock

SharesShares – owning a portion of a company – owning a portion of a company - corporations raise money for starting, - corporations raise money for starting,

running and expanding; running and expanding; equitiesequitiesTwo ways shareholders profitTwo ways shareholders profit

- - Dividends-Dividends-corps pay out profits;usually 4 corps pay out profits;usually 4 times a yeartimes a year

- - Capital Gains-Capital Gains-to sell a stock more than to sell a stock more than he paid for it; sells less than he paid for ithe paid for it; sells less than he paid for it--Capital lossCapital loss

Types of StockTypes of Stock

Income stockIncome stock -pays dividends at regular times -pays dividends at regular times during the yearduring the yearGrowth stockGrowth stock -pays few or no -pays few or no dividends;reinvests in business for long term dividends;reinvests in business for long term gainsgainsCommon stockCommon stock -voting owner; vote on board -voting owner; vote on board members, splitting stocks-(when 1 share is split members, splitting stocks-(when 1 share is split into 2, -if a stock is too expensive a comp. may into 2, -if a stock is too expensive a comp. may split; split; stock splitstock split))Preferred stockPreferred stock - no voting power but receive - no voting power but receive dividends firstdividends first

Risks of BuyingRisks of Buying

A firm may earn lower profits and receive no A firm may earn lower profits and receive no dividends and stock value goes down dividends and stock value goes down

- If you sell (- If you sell (Capital lossCapital loss))

Stocks are a risk, the higher the risk the bigger Stocks are a risk, the higher the risk the bigger the the dividenddividend or or capital gaincapital gain

A savings account or bond earns A savings account or bond earns interest interest (money paid for lending) over time and are safe(money paid for lending) over time and are safe

Day traders – try to make money by minute to Day traders – try to make money by minute to minute trades in hopes to make profitsminute trades in hopes to make profits

How stocks are TradedHow stocks are Traded

StockbrokersStockbrokers – link buyers and sellers; – link buyers and sellers; give advice to buy or sellgive advice to buy or sell

- Companies don’t sell stock- Companies don’t sell stock

- Work for - Work for Brokerage FirmsBrokerage Firms (business (business that specializes in trading stocks)that specializes in trading stocks)

- they make profit from commissions and - they make profit from commissions and fees on each transactionfees on each transaction

Stock ExchangesStock Exchanges -markets for -markets for buying and selling stockbuying and selling stock

NYSE- New York Stock ExchangeNYSE- New York Stock Exchange – U.S. largest and – U.S. largest and most powerful most powerful

- started in 1792- started in 1792 - handles stock and bonds for - handles stock and bonds for blue chipblue chip companies (comp companies (comp

that continue to profit)that continue to profit)NasdaqNasdaq – American market for trades made – American market for trades made electronically; started in 1971electronically; started in 1971Dow Jones IndustrialDow Jones Industrial – represents 30 large companies; – represents 30 large companies; food, entertainment, and tech industries - food, entertainment, and tech industries - S & P 500S & P 500 (Standard and Poor) – tracks price changes of (Standard and Poor) – tracks price changes of 500 different stocks to measure overall stock market 500 different stocks to measure overall stock market performanceperformance

Bull MarketBull Market – stock market rises steadily over time – stock market rises steadily over timeBear MarketBear Market – stock market falls steadily over time – stock market falls steadily over time

The Great Crash of 1929The Great Crash of 19291929 – Economy in excellent shape and the stock market was the main 1929 – Economy in excellent shape and the stock market was the main indicatorindicatorMarket was soaring –(1925-27 billion by 1929-81 billion) total market Market was soaring –(1925-27 billion by 1929-81 billion) total market valuevalue

1.1. Small number companies and families owned much of the nations wealthSmall number companies and families owned much of the nations wealth2.2. Ordinary debt by consumersOrdinary debt by consumers3.3. Producers making more goods than people could by (surplus) causing Producers making more goods than people could by (surplus) causing

prices to fall (prices to fall (deflationdeflation))4.4. Debt from Debt from speculationspeculation-people borrowed money to invest -people borrowed money to invest speculatingspeculating a a

high return – some used entire savingshigh return – some used entire savings5.5. Buying on the margin – pay a small portion and borrow from brokerage Buying on the margin – pay a small portion and borrow from brokerage

firms – 5 million in 1928 to 850 million in 1929firms – 5 million in 1928 to 850 million in 19296.6. In Sept – stock market began to fall 381 by the Dow to 360 in one dayIn Sept – stock market began to fall 381 by the Dow to 360 in one day7.7. Banks wanted loans repaid and people started to panic and sell off stocks Banks wanted loans repaid and people started to panic and sell off stocks

to quick for the market to handleto quick for the market to handle8.8. Too late – peoples shares turned into a fraction of what they paid for itToo late – peoples shares turned into a fraction of what they paid for it