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:: Stock Market

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  • 1. Goals Typical stock market projects make the simulation into a contest where the group with the highest portfolio value at the end of the exercise wins. This is unfortunate because it encourages poor investment choices such as rapid trading and taking large risks. Unlike typical stock market projects the goal here is to learn and understand basic investment principles, current events, how the economy works, money management skills, economic principles, and basic math and writing skills. All of theses skills will help you become successful in the real world. Materials Needed 1. Folder and dividers 2. Paper 3. Computer and Printer Portfolio Requirements 1. Class Notes on the stock market 2. Research a. Copies of 1 article or “company snapshot” dealing with the stock you wish to invest in and a written abstract about each article 3. Stock Picks with an explanation of why they were picked 4. Tracking and graphing of each stock’s performance and the performance of the portfolio 5. At least one weekly news item per stock that effects the stock market 6. 1 to 1 ½ page paper on some aspect of the history of the stock market. Possible topics: a. Index Funds f. Dow Jones Industrial b. Mutual Funds Average c. Stock Market Crash g. S&P 500 d. Savings and Loans Crash h. New York Stock e. Tech Bubble Exchange i. NASDAQ Possible Extension Activity: 1. http://biz.yahoo.com/x/r/c.html a. Enter an actual stock market competition such as the one above from Yahoo.
  • 2. In order to invest you must have a proper understanding of the stock market. Economics class is a great time to learn about the stock market and hopefully help you in the long run. Notes are important; therefore I would like to see that you have taken down the information. You may print out the notes or you may hand copy them. If you print them out I would like to see that you have added information to them. When it comes to money you can not be passive. Thousands of books have been written on the stock market and thousands of articles are written daily about the stock market. The information is out there it is your job as an investor to sort it out. You must be on the look out for credible sources who are not trying to make money off of your ignorance of the market. Stick with the major websites, TV shows, magazines, and books until you get a good understanding of the complex world of stocks. In order to invest in a company you must find at least one article that mentions the stock you are considering. You must read that article and then write a brief summary of the entire article, also known as an abstract. It would be a good idea to go to the company’s website and snoop around the investor relations portion of the website. The easiest way to begin your research would be to go to one of the following websites: 1. http://moneycentral.msn.com/home.asp 2. http://finance.google.com/finance 3. http://finance.yahoo.com/ (cannot use in the computer labs?) 4. http://www.smartmoney.com/ 5. http://morningstar.com/ 6. http://www.bigcharts.com Read some of the commentary for investment ideas and market trends. Once you have a stock in mind type in the ticker symbol in their search field and do some more in-depth research of you own. Most pages have something called a company snapshot. This tells all of the major information about a stock. If you think that you are going to invest in a stock then you need to print off the information on the snapshot page and place it in your journal.
  • 3. Now here comes the fun or scary part for some people. Here you actually get to test out your knowledge of the stock market and your ability to invest. It is now time to buy some stock. Don’t be nervous its not real money, but someday it will be. Now that you have done your research it is time for you to narrow down your choices with your group. I suggest that you make a chart similar to this one: Stock (Symbol and The reason I should Price P/E Ratio Name) to buy this stock? The name and symbol column are just to give you a reference of which stocks you are considering. The price lets you calculate how many shares of a stock that you are capable of buying. The P/E ratio allows you to compare all stocks on equal footing. Remember that stocks can produce earnings for an investor. Those potential earnings come at a price (the stocks listed price). A way to compare how much people are willing to pay for those earnings is to divide the stocks price by its earnings per share. A high P/E means that people are willing to pay a great deal to capture a stock’s potential earnings. A low P/E means that people are not willing to pay as much for potential earnings. The P/E ratio compare apples to oranges, whereas comparing a stocks’ price may be like comparing apples to oranges. Finally I need to know why you want to invest in the stock. Was it on TV or in an article? Why do you expect the price to rise? At what price would you be comfortable selling it and taking some profits? Narrow down your lists of stocks to a total of ten. We are choosing ten because we want to remain diversified! Diversification helps us to weather the ups and downs of the market. People who put all their eggs in one basket lose all of their eggs. You must now decide how much to invest in each of your chosen companies or funds. You have $100,000 to invest. You must spend all but $10 of that amount. I would make another table that looks something like this: Stock Name and Total Amount Price Number of shares Symbol invested
  • 4. Its always fun to find out how much you are worth. It can be just as terrifying to find out how much you have lost. That is why we are going to track our stocks value over the course of the simulation. To track your stocks you need to make a table for each of your ten stocks that looks similar to this, 10 additional rows should be sufficient: Gain or Loss Important Events Change from Date Price from previous that affected the Previous Close close price - You can then divvy up the stock charts and make each person in the group responsible for keeping up with X number of stocks so that one person does not do all of the work. Stocks need to be checked at least one time per week. Record whether you have gained or lost money: If your stock closed at a higher price than when you previously checked it use this formula: (Current Closing Price) - (Previous Closing Price) = Gain If your stock closed at a higher price than when you previously checked it use this formula: (Previous Closing Price) - (Current Closing Price) = Loss You must record important events that affected the stock’s price. A print out of the article would be excellent, but a brief summary will suffice.
  • 5. Graphs are a common feature of any good portfolio manager. They allow you to easy see and show others how your investments have preformed over a certain period of time. You should then graph the change in each of your stock’s prices. You graph the change in the stocks price from the previous day so that you can easily see the amount of money that you have gained or lost since you invested in the stock. The Y axis of your graph should probably cover about $15-$20 above and below the X axis. It should probably also be done in increments of $.50 or smaller. The X axis of your graph should be labeled with the appropriately spaced dates that you checked your portfolio over the course of the simulation. At the end of each week your group should also graph your portfolio’s total value. To do this you take each stock’s most recent closing price and multiple it by the number of shares of that stock that you own. Add the totals together and graph the change in total portfolio value from week to week. Each week you can make a chart like this to help you just add 9 more rows to the chart below: Stock’s Name and Most Recent # of Shares Owned Current Value of Symbol Closing Price Shares ----- ----- ----- ----- Total Current Value of Portfolio: Previous Total Value of Portfolio Gain = Loss = Change in the value (Current Total (Previous Total of the Portfolio Value) - (Previous Value Price) - Total Value) (Current Total Value)

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