The representatives of the shareholders (owners) are that company’s Board of Directors
The Board hires the company’s chief executive officer– who runs the day-to-day operations of a company
Companies sell shares because they can raise money by selling parts of themselves.
Investors can own parts of a profitable company without owning the whole thing.
Companies share their profits with their shareholders – called dividends
A public market where the stock of publicly traded companies are bought, sold and traded.
A company’s stock is only traded in one stock exchange
Can be electronic (often is now)
NASDAQ – Located in New York. Electronically traded
New York Stock Exchange (NYSE) – Located on Wall Street, New York.
Other large markets in London, Tokyo, Bejing
When a stock is described at trading at a certain dollar amount (often described in fractions, not decimals) that is the price of the last purchase/sale made.
Stocks rise and fall in price as people are willing or unwilling to buy stock at that price.
I want to sell some stock at $2 a share, which is the price it is trading at that moment (ie the last transaction). No one agrees. So I drop my price to $1.99. Someone agrees to buy at that price. The stock has thus fallen $.01.
Company’s actions (buying new factories, hiring more workers, etc . . . )
Company profits (now and in the future)
Current events – legal, governmental, resources.
Overall economic health
It indicates a healthy, profitable company
Makes it easier for company to raise new money
The Board of Directors will fire executives who don’t help keep stock prices up
Employees often receive stock (known as stock options) as part of their compensation
Most Americans own stock
Is seen as an indicator for overall economic health:
If people are buying stock, they must be feeling confident that the company will make money. If a lot of people are buying stock in a lot of different companies perhaps indicates confidence in economy overall.
Companies can more easily raise $
If stock prices are rising, shareholders have more $ to spend
Composite indexes – Each stock exchange is tracked by an index (how much value you would have if you held one share of every company traded in that exchange)
S & P 500 (Standard and Poor’s 500 Index) – Also an index, charts share prices of 500 companies traded in the United States
Dow Jones Industrial average – The average value of stock for 30 major American companies
To make the system fair the SEC (Securities and Exchange Commission) regulates the stock markets. They look for
Fraud – companies lying about how well their companies are doing to elevate stock price
Insider trading – Employees of a company (and relatives, friends, etc . . .) using inside information for an unfair advantage
Stock manipulation – investors try to manipulate stock prices through spreading rumors, lies, etc . . .