1. Investing Your Money
-Savings Accounts
-Stock Market
(Buy on Margin)
-Mattress
In 1929 -513 Millionaires in America
by 1932 - 20
2. Savings Accounts
- Guaranteed Profit
- Safe
Stock Market
- Chance for Larger Profits
- Greater Risk
Buying Stocks – On Margin(Loan-on credit)
- Very Risky
- Chance for Large Profits will only a small
amount of cash
Mattress
- No Profit
- No Risk
3. Saving Accounts
Say You have $10,000 but you don’t want
to invest in the Stock Market because you
want a reliable income by investing your
money in the Bank
• Simple Interest
Rate per year – 6%
YEAR 1
10,000 x .06(6%) = $600
YEAR 2
10,000 x .06(6%) = $600
YEAR 3
10,000 x .06(6%) = $600
Total Money Saved after
3 yrs = $1,800 + 10,000
• Compound Interest
Rate per year – 6%
YEAR 1
10,000 X .06(6%) = $600
YEAR 2
10,600 x .06(6%) = $636
YEAR 3
11,236 x .06(6%) = $674.16
Total Money Saved after
3 years = $1,910.16 + 10,000
4. • In the 1920’s business
used advertising
• This convinced
consumers that they
would be happier if
they bought their
product
• Many began to buy on
credit(installment plans)
Advertising played a role
5. How does the stock market work?
You buy 100 shares of stock of
x $5.00 per shareHow much money
have you invested? $500.00 (initial investment)
Scenario #1
stock increases to $20 per share
100 shares of stock
x $20.00 per share
How much are your 100
shares of stock now worth?
$2,000.00
How much profit have you
made?
$2,000.00 stock value
- $500.00 initial investment
$1,500.00 net profit
7. How does the stock market work?
You buy 100 shares of stock of
x $5.00 per shareHow much money
have you invested? $500.00 (initial investment)
Scenario #2
stock decreases to $1 per share
100 shares of stock
x $1 per share
How much are your 100
shares of stock now worth?
$100.00
How much money have you
lost?
$100.00 stock value
- $500.00 initial investment
$400.00 net loss
8. * Unquestioned
faith in the bull
market helped
lead to the
GREAT
DEPRESSION!
Some people
began to buy
stocks on margin,
which is similar to
installment buying
(on Credit)
9. Credit and the Stock Market
The Federal Reserve
• The board of the Federal Reserve,
the nation’s central bank, worried
about the nation’s interest in stock
and decided to make it harder for
brokers to offer margin loans to
investors.
• Their move was successful, until
money came from a new source:
American corporations who were
willing to give brokers money for
margin loans.
• Buying continued to rise.
Investors increasingly used credit to buy stocks as the market rose.
Buying on Margin
• Investors were buying on margin,
or buying stocks with loans from
stockbrokers, intending to pay
brokers back when they sold the
stock.
• As the market rose, brokers
required less margin, or investors’
money, for stocks and gave bigger
loans to investors.
• Buying on margin was risky,
because fallen stocks left investors
in debt with no money.
• If stocks fell, brokers could ask for
their loans back, which was called a
margin call.
10. The stock market:
• people invest in a co.
by purchasing stocks;
in return for this they
expect a profit
• With booming economy
of the 1920's, $ was
plentiful, so banks
were quick to make
loans to investors
• also investors had to
pay as little as 10% of
the stock's actual value
at time of purchase
– this is called?
BUYING ON MARGIN,
and the balance was
paid at a later date
11. Buying Stocks on Margin: Scenario A
investor stock broker
Hello, sir. I
would like to
purchase 100
shares of stock
in Ford. How
much is it going
to cost me?
12. Buying Stocks on Margin: Scenario A
investor stock broker
Well, Ford
stock costs
$10 per
share. You
want to
buy 100
shares?
Figure it out
yourself,
smartguy!
13. Buying Stocks on Margin: Scenario A
investor stock broker
Ummm…
100 shares
x $10 per share
= $1,000.00
Oh, well. I only
have $200. I can’t
afford 100 shares.
14. Buying Stocks on Margin: Scenario A
investor stock broker
No, problem!
Just give me
$200 and you
can owe me
the rest!
15. Buying Stocks on Margin: Scenario A
investor stock broker
Like, how much
would that be?
Let me think…
$1,000 worth of stock
- $200 paid
= $800 owed
Alright, it’s
a deal!!
16. Buying Stocks on Margin: Scenario A
investor stock broker
Six months later, Ford stock doubles to $20 per share.
Sell Out Mr.
Broker Sir.
My 100 shares
are now
worth...
100 shares
x $20 per share
$2,000
17. Buying Stocks on Margin: Scenario A
investor stock broker
That’s great!
Now pay me
the $800 you
owe me!
18. Buying Stocks on Margin: Scenario A
investor stock broker
No problemo! It
was a pleasure
doing business
with you!
19. Buying Stocks on Margin: Scenario A
investor
Now let’s figure out how
much money I made!
$2,000 net worth
- $800 owed to Broker
$1,200 -- money on hand
- $200 initial investment
$1,000 net profit
20. Buying Stocks on Margin: Scenario B-Investor didn’t sell
investor stock broker
Six months later, Ford stock decreases to $1 per share.
My 100 shares
are now worth...
100 shares
x $1 per share
$100 net worth
21. Buying Stocks on Margin: Scenario A
investor stock broker
Too bad,
hotshot! You
still owe me
$800!
22. Buying Stocks on Margin: Scenario A
investor stock broker
But I’m broke!
What am I going
to do!
23. Buying Stocks on Margin: Scenario A
investor stock broker
I don’t care
what you do as
long as you pay
me back!
24. Unquestioned
faith in the Bull
market helped
lead to the
GREAT
DEPRESSION!
Many Buy stocks
on margin, which
is similar to
installment buying
