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The Stock Market
Introduction to Economics
Johnstown High School
Mr. Cox
Introduction
Why do people start businesses?
Profit
When you make money in business, it is called a profit.
Mathematically: Profit = Revenue – Cost
For example: If you buy an iPod for $250 and sell it for $300,
you made a profit of …
Loss
There is also a risk that you will lose money!
How do you raise money to start a
new business?
One way to raise money is to borrow money from a bank. This
money must be paid back.
Stocks
You can also sell ownership in
the company. This means you
have other people give you
money and they have a share
in the profits (and losses) of
the company. These
ownership shares are called
shares of stocks.
Dividends
When a company makes a profit, they typically pay the owners
of stock a dividend.
The Stock Market
If you own shares of a company,
you can sell them to other
people in the stock
market.
The New York Stock Exchange
(NYSE) is one of these markets.
Many exist across the globe.
Exchanges are simply places where
buyers and sellers meet and decide on a price
for a stock. Think of it as a flea market where
buyers and sellers come together and agree on
a price for a product.
Stock Prices
When a company is doing well, more people want to buy the
stock and its price in the market rises.
When a company is not doing well, more people
want to sell the stock and its price falls.
Common and Preferred Stocks
Common stock is the type most people purchase. It
represents ownership of a company and a claim on
part of the profits. Investors get one vote per stock.
Preferred stocks don’t have the same voting rights, but
investors are usually guaranteed a fixed dividend. If the
company is liquidated, they are paid off first.
NASDAQ
NASDAQ is a virtual market called an “over the
counter (OTC) market. It has no central location or
floor brokers. Trading is done through a computer and
telecommunications network of dealers.
These market makers provide continuous bids and
ask prices within a prescribed percentage spread for
shares for which they are designated to make a
market. They usually maintain an inventory of shares
to meet demands of investors.
Influences on Stock Prices
Market forces changes stock prices every day. Share prices change because of
supply and demand. If more people want to buy a stock (demand) than sell it
(supply) the price goes up. If more people want to sell than buy, the price
goes down.
Current world events also have an impact on stock prices. For example, after
9/11, aviation stocks decreased in value. This was in anticipation of a drop in
traveling by the consumer and thus a decrease in profits. This caused a lot of
trouble for those companies.
“Animal” Markets and Investors
The Bull – a bull market is when the economy is doing well, the GDP is
growing and stock prices are rising. The bull market charges ahead.
The Bear – a bear market is when the economy is bad, recession is looming
and stock prices are falling. A bear market hibernates and moves slowly.
The Chickens – chickens are afraid to lose anything. They invest in safe
things like bonds or mutual funds.
The Pigs – pigs are high-risk investors. They want to make a killing in a
short time. Unfortunately, they are usually led to the slaughter.
Recap
•Stock means ownership.
•You can lose all of your investment with stocks.
•The two main types of stocks are common and preferred.
•Stock markets are places where buyers and sellers come together.
•Stock prices change according to supply and demand.
•Bulls make money. Bears make money. Chickens sit on money. Pigs
.
just get slaughtered!
The Comparative Challenge
This week, each day you will look up and graph the stock prices
for two companies: Pepsi and Coke.
You will also monitor the changes in price of two other
competitive companies.