Transcript File
The Stock Market Introduction to Economics Johnstown High School Mr. Cox Introduction Why do people start businesses? Profit When you make money in business, it is called a profit. Mathematically: Profit = Revenue – Cost For example: If you buy an iPod for $250 and sell it for $300, you made a profit of … Loss There is also a risk that you will lose money! How do you raise money to start a new business? One way to raise money is to borrow money from a bank. This money must be paid back. Stocks You can also sell ownership in the company. This means you have other people give you money and they have a share in the profits (and losses) of the company. These ownership shares are called shares of stocks. Dividends When a company makes a profit, they typically pay the owners of stock a dividend. The Stock Market If you own shares of a company, you can sell them to other people in the stock market. The New York Stock Exchange (NYSE) is one of these markets. Many exist across the globe. Exchanges are simply places where buyers and sellers meet and decide on a price for a stock. Think of it as a flea market where buyers and sellers come together and agree on a price for a product. Stock Prices When a company is doing well, more people want to buy the stock and its price in the market rises. When a company is not doing well, more people want to sell the stock and its price falls. Common and Preferred Stocks Common stock is the type most people purchase. It represents ownership of a company and a claim on part of the profits. Investors get one vote per stock. Preferred stocks don’t have the same voting rights, but investors are usually guaranteed a fixed dividend. If the company is liquidated, they are paid off first. NASDAQ NASDAQ is a virtual market called an “over the counter (OTC) market. It has no central location or floor brokers. Trading is done through a computer and telecommunications network of dealers. These market makers provide continuous bids and ask prices within a prescribed percentage spread for shares for which they are designated to make a market. They usually maintain an inventory of shares to meet demands of investors. Influences on Stock Prices Market forces changes stock prices every day. Share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply) the price goes up. If more people want to sell than buy, the price goes down. Current world events also have an impact on stock prices. For example, after 9/11, aviation stocks decreased in value. This was in anticipation of a drop in traveling by the consumer and thus a decrease in profits. This caused a lot of trouble for those companies. “Animal” Markets and Investors The Bull – a bull market is when the economy is doing well, the GDP is growing and stock prices are rising. The bull market charges ahead. The Bear – a bear market is when the economy is bad, recession is looming and stock prices are falling. A bear market hibernates and moves slowly. The Chickens – chickens are afraid to lose anything. They invest in safe things like bonds or mutual funds. The Pigs – pigs are high-risk investors. They want to make a killing in a short time. Unfortunately, they are usually led to the slaughter. Recap •Stock means ownership. •You can lose all of your investment with stocks. •The two main types of stocks are common and preferred. •Stock markets are places where buyers and sellers come together. •Stock prices change according to supply and demand. •Bulls make money. Bears make money. Chickens sit on money. Pigs . just get slaughtered! The Comparative Challenge This week, each day you will look up and graph the stock prices for two companies: Pepsi and Coke. You will also monitor the changes in price of two other competitive companies.