The Stock Market

What is Stock?

• Stock represents ownership in a company.• Buying stock is an investment in the

company.• The stock market is a medium for the trading

of stocks.• If a firm sells 10,000 shares of stock and you

purchase 1,000 of them, you own 10% of the firm.

Video Definition

Why buy or sell stock?

• Corporations sell stock to raise $• Limited Liability• Individuals buy and sell stock to make $• As a stockholder, you share in a corporation’s profits.• The Stock Market operates in a Market Economy,

therefore stock value is determined by supply and demand.

• Like baseball cards, you don’t just buy cards, you invest.

• Businesses must undergo an initial public offering (IPO), to go “public” and can be expensive.

• Companies also sell bonds to raise money

What’s in it for you?

• Capital Gains: An increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized

until the asset is sold. • Dividends: A distribution of a portion of a company's

earnings, decided by the board of directors, to a class of its shareholders. Dividends may be in the form of cash, stock or property. Most secure and stable companies offer dividends to their stockholders. Dividends are received quarterly.

Types of Stock

• Common: (most common type) a security that represents ownership in a corporation. Holders of common stock exercise control by electing a board of directors and voting on corporate policy. Common stockholders are on the bottom of the priority ladder for ownership structure. In the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders and other debt holders have been paid in full.

• Growth Stock: Growth Stocks do not pay dividends,

instead companies reinvest their profits into the company. • Preferred: Earn dividends fixed at an annual rate.

Corporate Structure

• All corporations have the same basic structure.

• Stockholders elect a board of directors.• 1 stock equals 1 vote. May elect selves.• The board of directors is the governing body

of the corporation. It makes business decisions and hires managers to run the corporation. Hires the CEO.

• http://www.investopedia.com/articles/basics/03/022803.asp

Board of Directors = Govern

Management = Run

Stockholders = Own

Elect

Appoint

Mergers (Acquisition)

• Buying of controlling shares of stock in one corporation by another corporation.

• Conglomerate Merger (non-related)

• Vertical Merger (closely-related)

• Horizontal Merger (same-market)

• Holding Company: owns or holds stock in other corporations.

Stock Exchanges• NYSE: A stock exchange based in New York City,

which is considered the largest equities-based exchange in the world based on total market capitalization of its listed securities. The parent company of the New York Stock Exchange is now called NYSE Euronext, following a merger with the European exchange in 2007.

• Represents 1/3 of world equities, 8,000 listings, holds 70 of the largest 100 Global Corporations.

• NYSE website

NASDAQ

• A computerized system that facilitates trading and provides price quotations on more than 5,000 of the more actively traded over the counter stocks. Created in 1971, the Nasdaq was the world's first electronic stock market.

• The term "Nasdaq" used to be capitalized "NASDAQ" as an acronym for National Association of Securities Dealers Automated Quotation. The acronym is no longer used and Nasdaq is now a proper noun.

• The Nasdaq is traditionally home to many high-tech stocks, such as Microsoft, Intel, Dell and Cisco.

American Stock Exchange

• AMEX is the third-largest stock exchange by trading volume in the United States. In 2008 it was acquired by the NYSE Euronext and became the NYSE Amex Equities in 2009. The AMEX is located in New York City and handles about 10% of all securities traded in the U.S.

World’s Largest Stock Exchanges

• http://www.forbes.com/pictures/eddk45iglh/the-worlds-biggest-stock-exchanges/

Indexes• Dow: DJIA video, Blue Chip Stock

• http://money.cnn.com/data/dow30/• Standard & Poor’s, NASDAQ Composite

Reading Stock Quotes

How to trade stock?

• Stock Exchanges:– NYSE, AMEX, NASDAQ

• Stock Brokers• Online:

Resources

• Blue Chip Stock Increases Article• Auto Industry• Dow Jones Industrial Averages• Standard and Poor's 500• NASDAQ Composite• http://finance.yahoo.com/• How Stocks are Bought and Sold

Resources

• http://www.nyse.com/about/education/1098034584990.html