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The Republican Newspaper's

  1. 1. $$$$$$$$$$$$ The Republican Newspaper’s 2008-2009 Stock Market Challenge General Rules and Guidelines: 1. The Republican Stock Market Challenge is open to grades 5-8 & 9-12. 2. The game will run from Nov. 3, 2008 to April 7, 2009. 3. Each team has an imaginary $1,000,000 to invest. Investment totals must come as close as possible, without exceeding this $1,000,000. Any money not invested at the beginning of the game will be forfeited. 4. Teams will be provided with a list of approved corporations. They may invest only in the stocks of these corporations. 5. There will be two opportunities to trade stocks during the Challenge. The first will likely be in December, and the second in February or March. Dates for the trades will be made available later. 6. At all times during the Challenge, each team must have a minimum of five stocks in their portfolio and a maximum of ten. 7. Teams may not make any purchases that would result in their having more than 20% of their portfolio's total value tied up in one company’s stock. (see the Additional Resources section for more details on the 20% rule). 8. Excel spreadsheets will be provided to each team for use in submitting their stock purchases and trades. Teams are free to track their portfolio’s progress in any manner they wish, but all transactions must be made using the Excel sheets provided. 9. Newspaper delivery – each team is eligible to receive 25 newspapers per week. You may receive all 25 on one day or divide them across multiple days (minimum delivery is 5 copies for any day ordered). We recommend receiving at least some copies on Tuesdays, since teams will need to use the prices published on selected Tuesdays (i.e. Monday’s closing prices)in choosing their stocks and making trades. 10. Each Stock Market Challenge team will be charged a $50.00 flat fee. Fee must be paid in advance by check, cash or charge. Purchase orders will also be accepted, provided that copies are sent to us before the start of the Challenge. 1
  2. 2. 11. All Initial Investments sheets and Trades Sheets must be turned in by the stated deadline dates. Teachers and team leaders are asked to carefully check the calculation on all sheets before they are submitted. Errors will result in our inability to submit the trade. 12. In this game, dividends and brokerage commissions are excluded. Stock splits will automatically be included when portfolios are calculated. 13. Team standing reports will be sent periodically by email in Excel format. If you wish to have a hard copy mailed to you, or have other questions or concerns, please notify Challenge Headquarters at 413-788-1073 or by email at TO BEGIN THE GAME: 1. Teams will purchase stock of no more than ten corporations and no less than five from the list provided. Remember that teams may not have make any purchases that would result in their having more than 20% of your portfolio's total value tied up in one company’s stock. (For example, your portfolio value should be approximately $1,000,000, so just make sure not to invest more than $200,000 in any one company). 2. Stock purchases may not exceed $1,000,000, and any unused monies will be forfeited. 3. Stock market closing figures of Mon., Nov. 3, appearing in The Republican on Tues., Nov. 4, must be used by all teams for their initial purchases. 4. Each team must complete their “Initial Investment Sheet” using the Excel sheet provided and email it to Challenge Headquarters at The Republican by Wednesday, November 5, 2008. 5. There will be two opportunities to sell off stock and buy stock in other companies during the course of the Challenge. The dates will be finalized soon, but the trades are typically scheduled in December and February. 2
  3. 3. $$$$$$$$$$$$ The Republican Newspaper’s 2008-2009 Stock Market Challenge Additional Resources FIGURING OUT THE 20% RULE As stated in the rules, “teams may not make any purchases that would result in their having more than 20% of their portfolio's total value tied up in one company’s stock.” The primary reason for this rule is to underscore the importance of maintaining a diverse portfolio. Here are a few tips on staying clear of this rule: 1. Initial Stock Purchase: Since the 20% rule is based on the total value of your portfolio, staying under the limit at the start of the Challenge is easy – simply make sure that you do not purchase more than $200,000.00 in any one company. 2. Stock Trades: You will have two opportunities to trade stocks during the challenge. You just need to make sure that any purchase of new stocks does not cause your holdings in that company to exceed 20% of the total value of your portfolio before the trade.. For example: Total portfolio value at time of trade = $1,250,000.00 20% of that total = $250,000.00 This means that your holdings in any 1 company cannot exceed $250,000.00 at the completion of this trade. So, if you owned $150,000.00 worth of shares of Company X before the trade, the most that you could spend to buy more shares of Company X would be $100,000.00. Important note: During the course of the Challenge, a rise in the price of one of your stocks might create a situation where more than 20% of your portfolio’s value is now tied up in one company. This is OK, because the change was due to the natural fluctuation of stock prices, rather than any action on your part. We certainly don’t want to penalize a team for making a timely business decision! Just remember not to try and buy MORE of that company’s stock at trade time . 3
  4. 4. What Are Stocks? In order to raise money to grow – to buy new machinery, to build factories, to do research, etc. – a business can become a corporation, entitled to sell shares of stock. Stock is a share, or part ownership, in such a corporation. The stockholders, the people who bought these shares, are the owners. Imagine that you have invented a new snack that is so delicious all of your friends love it! You would like to make enough of the snack to sell, but you don’t have enough money to buy the ingredients in large amounts. Some of your friends and relatives are willing to invest some money in your new business. They are buying stock in your new company, and in return, they will share some of the money you make. Of course, if your business doesn’t do well, they may lose the money they invested, but they have confidence in you, and they are willing to take the risk. On a much larger scale, the stock market works in the same way. A corporation is like an enormous pie cut into hundreds of pieces, or shares. The ability to sell these shares gives the company a big advantage in raising capital, or money to grow. It is also a form of investment for the stockholders who can profit in several ways. First, an investor may be able to sell his stock for more than he paid for it, thus making a profit called a “capital gain”. Second, some corporations pay stockholders dividends, or part of their profits. By owning stock in a successful company, a person’s investment should increase as that company grows. Of course, investing in the stock market involves risks as well as rewards. Stock prices can fall as well as rise, and a stockholder might not be able to sell his stocks for as much as he paid for them. At worst, a company could fail, and an investor could lose all of the money he originally paid for the shares. The ups and downs of the stock market are popularly described by the terms “bear” and “bull”. If more people want to sell stock than buy it, prices fall, and the market is referred to as “bearish”. In a “bullish” market, prices rise because more people want to buy than sell. The expression bear and bull as they describe the stock market are thought to come from the way these animals attack. A bear’s paws swing downwards when attacking, while a bull tosses its horns upwards. 4
  5. 5. Activities 1. Look through the Business section of The Republican. This section is largely devoted to stock market reports. What corporations on the NYSE, AMEX and NASDAQ most active lists can you identify? 2. As a class, invent a new product that should be a great success. Give your product a name, and create a corporation to produce it. How much money might your corporation need to start production? How could you raise this money? 3. Look for articles in the newspaper that discuss the fluctuations – the ups and downs – of the stock market. Do any indicate that the current market is bullish or bearish? Or, use the stock market listings to decide for yourself if the market is a bear or bull market. Investing in the Stock Market Most stock market investors seek advice from a stock market broker before they choose their stocks. A broker is an expert on trading stock. His job is to bring together the people who want to buy and sell stock. His value to his customers is his training and his up-to-date knowledge of what’s going on in the stock market. In return for his services, a broker is paid a commission, or a percentage of the value of the stocks that he helps to buy and sell. Using computers, a broker can find out a particular stock’s price at its last sale, the highest price at which anyone will buy this stock, and the lowest price at which anyone will sell it. This information helps the customer decide whether to buy or sell a particular stock. When an investor decides to buy or sell a stock, the broker wires the transaction information to his representative on one of the several stock exchanges located around the country. This representative bargains with other brokers until a bid and an offer meet and a sale is made. Seconds after the transaction is reported, it flashes onto computer screens in stock brokers’ offices throughout the world. The New York Stock Exchange, NYSE, in New York City is by far the largest stock exchange, followed by the American Stock Exchange, also in New York City. There are also a number of smaller exchanges in other cities, which usually handle businesses in their own regions. All of these exchanges, and the corporations and brokers who trade on them, are regulated by the Securities and Exchange Commission, or SEC. The SEC was established by Congress in 1934 to ensure that stock is fairly offered, that strict rules for stock transactions are followed, and that companies that sell stock provide truthful information to interested investors. 5
  6. 6. Besides the companies listed on the major stock exchanges, many more sell their stock without an exchange. Such stocks are sold in the over-the-counter market, and are known as OTC stock. There are thousands of stocks listed on the OTC market, ranging in size from small shops to huge corporations. Brokers who deal with OTC stock rely on the National Association of Securities Dealers Automated Quotation System, or NASDAQ, to provide the prices of such stock and the dealers from whom they can be purchased. Investors interested in opportunities abroad may make investments through major stock exchanges in Amsterdam, Brussels, Buenos Aires, Johannesburg, London, Melbourne, Sydney, Mexico City, Milan, Paris, Rio de Janiero, Tokyo, Montreal and Toronto. Activities 1. On a U.S. map, locate the following cities where regional stock exchanges are found: Chicago, San Francisco, Philadelphia, Boston, and Cincinnati. 2. Name the countries in which the major international stock exchanges are located. Can you find each of them on a world map or globe? 3. Discuss the role of the stockbroker. What qualifications and skills would a broker need? Write an imaginary classified ad to find the perfect stockbroker to help your team win The Republican Stock Market Challenge? The Beginnings of the Stock Market Until the Revolutionary War, most American businesses were small. The owners worked alone, or perhaps with only a few employees. The Industrial Revolution of the 1800’s changed all of this. New sources of power, such as coal and steam, many new inventions, including power-driven machinery, and faster forms of transportation, especially the railroad, made it possible for businesses to grow, to produce greater amounts of goods, and to deliver them more quickly to markets everywhere. As these businesses grew, they needed new buildings, more modern and efficient equipment, and more workers. All of these changed required large amounts of money. This need to raise money led to the beginning of the stock market. The people who bought and sold stocks needed a marketplace in which to conduct their business, and in 1792 a group of 24 businessmen began meeting regularly under a sycamore tree on Wall Street in New York City to buy and sell stock and to encourage others to do the same. In this informal marketplace, people could trade stock directly with each other. The group soon moved to a restaurant, but as more businesses began to sell stock, it needed more room – and also more formal rules and regulations. The marketplace was 6
  7. 7. moved again to a meetinghouse on Wall Street, and the New York Stock Exchange, NYSE, was begun. The center of the United States’ financial activity is still on Wall Street in New York City today. Indexes and Average Reports Investors usually pay attention to stocks other than their own as a measure of the general level of confidence in the stock market. Rather than try to keep track of all stock, readers of the Business pages often follow stock average reports, which show the general trend of the market. Each day, the closing price of certain key stocks in various fields are recorded and averaged. The results are compared to the averages of the previous trading day. Changes are shown with a plus or minus sign. A change of –1.25 means that the market in general is $1.25 lower than the day before. There are many of these averages in existence, but the Dow Jones Industrials Average is the most well known and most important of these average reports. It consists of 30 specially selected stocks representative of American industry. Stocks currently included in the Dow Jones Industrial Average are: MMM 3M Corporation AA Alcoa AXP American Express BAC Bank of America BA Boeing CAT Caterpillar CVX Chevron C CitiGroup KO Coca Cola DD E.I. DuPont de Nemours XOM Exxon Mobil GE General Electric GM General Motors HPQ Hewlett-Packard HD Home Depot INTC Intel IBM International Business Machines JPM JP Morgan Chase JNJ Johnson & Johnson KFT Kraft Foods MCD McDonalds MRK Merck MSFT Microsoft PFE Pfizer, Inc. PG Proctor and Gamble T AT&T UTX United Technologies VZ Verizon Communications WMT Wal-Mart Stores DIS Walt Disney 7
  8. 8. In addition to the Industrial Average, Dow Jones also reports on 15 utility companies, 20 transportation stocks, and an average of all 65 industrial, utility, and transportation stocks. Other indexes important to investors include the Standard and Poor’s Index, and the Index of Leading Economic Indicators and the Gross National Product (GNP), both of which are determined by the U.S. Department of Commerce. The Stock Market and the News Stock market prices rise and fall according to the economic theory of supply and demand. A corporation only has a certain number of shares to be traded, so prices depend on whether people want to buy shares or sell them. If more people want to buy stocks on a given day, the price of each share will go up; if more people want to sell, the prices will go down. The daily news has an affect on how people feel about the stability of the economy, and it has a big influence on investors and their decisions regarding the stock market. News that makes people worry can also make them decide to sell stock, causing prices to fall. News that makes people confident may also makes them more willing to invest, so that prices would rise. Investors, for example, who think that the election of a particular president will bring prosperity are more likely to purchase stock. If they fear the effect of a labor dispute within a major industry, they would be more inclined to sell their stock. The value of an individual company’s stock varies depending on how well the company does, how people feel about it, and its reputation. Has it lost money or been in the news because of problems? These are questions that investors will consider before buying this company’s stock. If a company has a good name, more people are willing to buy its stock at higher prices than if its reputation is poor. If a company is profitable, it is more valuable to other people, who are anxious to buy its shares, driving prices up. If, on the other hand, a business is losing money, the value of its stock falls as people sell them. As an example, suppose that at the end of the trading day on Monday, one share of the Acme Pharmaceutical Company, a small and newly incorporated business, is selling for 2.50 ($2.50). The next morning, newspapers around the country report findings that a new lotion manufactured by Acme Pharmaceutical has been found to reverse baldness, stop wrinkles, and prevent acne. By Wednesday, everyone is buying this “miracle” product, and the price of its stock soars to 20.25 ($20.25). On Thursday morning, however, a news story reports a mistake in the medical research; the value of this product is being questioned, and soon fewer people are buying it. Acme Pharmaceutical Company’s value begins to slip, and by Friday the value of its stock has dipped to 10.13 ($10.13). Whether the value of its stock continues to fall or bounces back depends largely on what people feel about the worth of the new product, and this is often determined by news reports. 8
  9. 9. Today, millions of people own shares of stock in American corporations. These stockholders actually own the corporations, and although they rarely operate the businesses themselves, they do have a stake in them, and in the future of our whole economy. Buying stock is a sign of confidence in this future. Stockholders believe that the companies they invest in will grow, and their investments are helping them, and our whole entire economy, to do just that. $$$$$$$$$$$ MORE ACTIVITIES Stock Market Listings 1. Look through the list of corporations provided with this game. Find some of them in the stock market report. On which exchanges are they listed? What was their closing price and net charge? As a class, begin discussion of the corporations in which you might invest. 2. Choose 5 companies included in the stock market listings. For each, write the last, or closing price and the net change in dollars and cents. The Stock Market and the News 1. Look through the stock market listings and find a company whose stock has made a significant gain or loss. Try to find a news item that might help to explain this change. 2. During the next few days, make a list of major news stories. Identify the industries which this news might affect. Use the stock market listings to see if the news did have an effect on these industries, or on the stock market in general. 3. Many factors influence the stock market, especially events reported in the news. Look for the following types of news reports. Check the Dow Jones Average to see if there is a resulting shift in prices:  A government report about rising or declining interest rates  A report that indicates a change in employment rates  A political event of national importance  A political event of international importance 9