The Stock Market. What Is It? =Md9BqukZQUc

Transcription

1 The Stock Market What Is It? =Md9BqukZQUc

2 Introduction Why do people start businesses?

3 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

4 Loss There is also a risk that you will lose money!

5 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.

6 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. There are two types of stocks Common & Preferred

7 Common Stocks Common stock represents the most common type of stock issued by companies & entitles shareholders to participate in the profit and growth of the company. When looking at investing in the stock market, for the most part, you are buying common shares in a company. They deliver appreciation (through growth in value of the company) & through dividends paid out of the company to shareholders. Dividend payments can change over time so predicting cash flows through common stock holdings can be difficult.

8 Preferred Stock The value and returns of preferred stock can vary greatly depending on the features and terms that are applied to them. Preferred stock often does not have voting rights and do not provide an ability to participate in the appreciation in the value of the company. Often, they come with specific payment terms that take precedence over common stock, with say a set dividend being paid out monthly, quarterly, or annually.

9 Common vs Preferred Often the decision between investing in common shares vs. preferred stock comes down to a risk and reward relationship. Common stock is riskier, you may lose it all, but often provides a better chance to participate in the growth of a successful company. Preferred stock come with less risk (assuming they have preference rights over common shares) but come with set dividend and repayment terms. Ultimately the choice comes down to weighing the risks and what your opinion is on the future of the company being considered.

10 Dividends When a company makes a profit, they typically pay the owners of stock a dividend.

11 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.

12 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.

13 Recap Businesspeople raise money buy selling stock (ownership claims) in their company. People who buy these shares can sell them on the market at a higher price and make money.

14 Terms you Need to Know There s the S&P 500, the NASDAQ, the Dow Jones. You hear these terms thrown around on the news, and you know that these words are vaguely investing-related. But you re not sure what any of these terms really mean. Or, maybe these terms are so foreign and unrelated to your life, you just ignore them. What's what?

15 Market Index The S&P 500, NASDAQ, Dow Jones, Russell and Wilshire are all examples of a market index. An index provides a summary of the overall market by tracking some of the top stocks within that market. Let s break it down

16 Dow Jones The Dow Jones Industrial Average is named after Charles Dow. This index tracks the 30 largest U.S. companies. This means it represents large-cap companies, which is the industry term for very big companies like Johnson & Johnson, McDonalds and Coca-Cola.

17 S&P 500 The S&P 500 This index tracks 500 large U.S. companies across a wide span of industries and sectors. The stocks in the S&P 500 represent roughly 70 percent of all the stocks that are publicly traded. S&P stands for Standards and Poor s, the name of a market research firm.

18 Wilshire 5000 The Wilshire 5000 This index represents up to 5,000 companies of all shapes and sizes, from gigantic corporations to the smallest of small companies. (In industry-terminology, these are known as large cap, mid-cap and smallcap. ) The Wilshire 5000 is often called the total market index. Strangely, despite how representative this index is, it isn t nearly as popular or as followed as the DJIA and S&P 500.

19 Russell 2000 The Russell 2000 The Dow Jones focuses on large companies, but the Russell 2000 does the opposite: it tracks only the smallest companies. This index follows 2,000 of the smallest players in the stock market.

20 The NASDAQ The NASDAQ (short for National Associations of Security Dealers Automated Quotations) I saved this one for last because it can get a little confusing. Nasdaq refers to both an index and a trading exchange OK. It is all confusing. Let me try and break it down. There s a marketplace where people go to buy stocks. This marketplace is called an exchange. The most famous one is the New York Stock Exchange. There s also a famous one called the Nasdaq Exchange.

21 NASDAQ Stocks that are traded on the Nasdaq Exchange tend to be tech companies, like Apple and Google. Of course, companies on the Nasdaq don t have to be as huge as those two icons. Smaller companies like Angie s List (the website that offers peer-to-peer reviews ofhome-repair contractors) and Flowers (the website that delivers flowers) are also listed on the Nasdaq exchange.

22 NASDAQ The Nasdaq also trades some banking companies, airline companies like Spirit Airlines, and even a few non-tech businesses like Starbucks and shoe company Steve Madden. In other words, there s no cast-in-stone law that says only high-tech companies are traded on the Nasdaq Exchange. The Nasdaq just generally tends to hold an abundance of tech companies.

23 NASDAQ The Nasdaq market index, which is known as the Nasdaq Composite, tracks the roughly 3,000 companies that are traded on the Nasdaq exchange. This is unusual, because no other exchange has its own popular index. The nightly news doesn t read stats from the New York Stock Exchange Composite. The Nasdaq Composite has grown popular because its commonly accepted as a shorthand indicator of how tech-sector and innovative companies both big and small are faring.

24 The Pepsi/Coke Challenge This week, each day you will look up and graph the stock prices for two competitive companies, i.e. Pepsi and Coke.

25 Resources Introduction o o o

26 Stock Tables How to read stock tables for dummies o o cks6.asp o

27 Site to Check Stock Progress