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The Stock Market


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The Stock Market

  1. 2. <ul><li>Stock is partial ownership of a company </li></ul><ul><li>It can be bought and sold </li></ul><ul><li>Its value can rise and fall </li></ul><ul><li>The representatives of the shareholders (owners) are that company’s Board of Directors </li></ul><ul><li>The Board hires the company’s chief executive officer– who runs the day-to-day operations of a company </li></ul>
  2. 3. <ul><li>Companies sell shares because they can raise money by selling parts of themselves. </li></ul><ul><li>Investors can own parts of a profitable company without owning the whole thing. </li></ul><ul><li>Companies share their profits with their shareholders – called dividends </li></ul>
  3. 4. <ul><li>A public market where the stock of publicly traded companies are bought, sold and traded. </li></ul><ul><li>A company’s stock is only traded in one stock exchange </li></ul><ul><li>Can be electronic (often is now) </li></ul>
  4. 5. <ul><li>NASDAQ – Located in New York. Electronically traded </li></ul><ul><li>New York Stock Exchange (NYSE) – Located on Wall Street, New York. </li></ul><ul><li>Other large markets in London, Tokyo, Bejing </li></ul>
  5. 6. <ul><li>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. </li></ul><ul><li>Stocks rise and fall in price as people are willing or unwilling to buy stock at that price. </li></ul>
  6. 7. <ul><li>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. </li></ul>
  7. 8. <ul><li>Company’s actions (buying new factories, hiring more workers, etc . . . ) </li></ul><ul><li>Company profits (now and in the future) </li></ul><ul><li>Current events – legal, governmental, resources. </li></ul><ul><li>Competitor’s actions </li></ul><ul><li>Overall economic health </li></ul><ul><li>Psychology </li></ul>
  8. 9. <ul><li>It indicates a healthy, profitable company </li></ul><ul><li>Makes it easier for company to raise new money </li></ul><ul><li>The Board of Directors will fire executives who don’t help keep stock prices up </li></ul><ul><li>Employees often receive stock (known as stock options) as part of their compensation </li></ul>
  9. 10. <ul><li>Most Americans own stock </li></ul><ul><li>Is seen as an indicator for overall economic health: </li></ul><ul><li>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. </li></ul><ul><li>Companies can more easily raise $ </li></ul><ul><li>If stock prices are rising, shareholders have more $ to spend </li></ul>
  10. 11. <ul><li>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) </li></ul><ul><li>S & P 500 (Standard and Poor’s 500 Index) – Also an index, charts share prices of 500 companies traded in the United States </li></ul><ul><li>Dow Jones Industrial average – The average value of stock for 30 major American companies </li></ul>
  11. 12. <ul><li>To make the system fair the SEC (Securities and Exchange Commission) regulates the stock markets. They look for </li></ul><ul><ul><li>Fraud – companies lying about how well their companies are doing to elevate stock price </li></ul></ul><ul><ul><li>Insider trading – Employees of a company (and relatives, friends, etc . . .) using inside information for an unfair advantage </li></ul></ul><ul><ul><li>Stock manipulation – investors try to manipulate stock prices through spreading rumors, lies, etc . . . </li></ul></ul>