[ 6.7 ] Stocks

Learning Objectives Describe how stocks are traded. Describe the benefits and risks of investing in stock. Explain how corporations raise money through stocks and bonds. Explain how stock performance is measured. Assess the ways to be a wise investor in the stock market.

[ 6.7 ] Stocks Key Terms shares. capital gain. capital loss. stock split stockbroker, brokerage firms, stock exchange. Futures options call option. put option. bull market bear market. speculation,

Investing in Stock You hear it on the news every day: “Stock prices fell today in heavy trading” or “The bulls controlled Wall Street today as the Dow surged.” Lots of long faces follow a drop in the stock market. A substantial rise prompts smiles and general enthusiasm. Lots of people—maybe even you—are interested in the stock market. But is the stock market a place where you should invest your precious resources?

Investing in Stock Benefits of Investing in Stock Types of Stock Stock Splits Risks of Investing in Stock

Investing in Stock Americans can find up-to-the-minute information about stocks in many places—from newspapers to television to mobile devices.

Investing in Stock A stock split doubles the amount of shares that a stockholder owns. Analyze Information Why does the value of the stock not also double?

Stock Trading Suppose you decide that you want to buy stock. How do you get started? Do you call up the company and place an order? Probably not, because very few companies sell stock directly. Instead, you would contact a stockbroker, a person who links buyers and sellers of stock. Stockbrokers usually work with individual investors, advising them to buy or sell particular stocks.

Stock Trading Stock Exchanges New York Stock Exchange Nasdaq Futures and Options Day Trading

Stock Trading Many tourists who visit New York City make a trip to Wall Street, home of the New York Stock Exchange and many brokerage firms.

Stock Trading Analyze Charts Wise investors benefit from being able to read stock tables such as this one. Which of these stocks paid the highest dividend at this time?

Tracking Stock Performance You may have heard newscasters speak of a “bull” or “bear” market or of the market rising or falling. What do these terms mean, and how can an investor track increases and decreases in the sale of stocks?

Tracking Stock Performance Bull and Bear Markets Dow Jones Industrial Average S&P 500

Tracking Stock Performance This sculpture of a bull stands in lower Manhattan, not far from Wall Street. Bull markets bring steadily rising prices, so the bull is symbolic of profits for stock market investors.

The Great Crash and Beyond Like the 1980s and 1990s, the 1920s saw a long-term bull market. Unfortunately, this period ended in a horrifying collapse of the stock market known as the Great Crash of The causes of this collapse contain important lessons for investors in the twenty-first century.

The Great Crash and Beyond Investing During the 1920s The Crash In the Wake of the Crash Shifting Attitudes Toward Owning Stocks Scandals Rock the Stock Market A Market in Turmoil

The Great Crash and Beyond In the 1920s, consumers went into debt to buy the latest innovations, including radios like the one advertised here.

The Great Crash and Beyond The stock market crash shocked the nation and ruined many people’s finances. Analyze Graphs By about how many points did the Dow drop from September 1929 to July 1932?

Quiz: Investing in Stock Suppose you own 100 shares of stock in a company, and each share is worth $120. A 2-for-1 stock split would leave you with A. 100 shares worth $120 each. B. 100 shares worth $240 each. C. 200 shares worth $60 each. D. 50 shares worth $240 each.

Quiz: Stock Trading What is one difference between the New York Stock Exchange (NYSE) and the Nasdaq Stock Market? A. Nasdaq focuses on new-technology stocks. B. Nasdaq’s trading floor is in Chicago. C. The NYSE serves the over-the-counter market. D. The NYSE is newer and smaller.

Quiz: Tracking Stock Performance How are the Dow Jones Industrial Average and the S&P 500 similar? A. Both report the daily change in price of all stocks. B. Both rose in value during the 2007–2009 bear market. C. Both measure how well hundreds of stocks are doing. D. Both track the performance of the stock market.

Quiz: The Great Crash and Beyond What did speculation and buying on margin have in common? A. Both made investors rich during the Great Crash. B. Both involved buying stock with borrowed money. C. Both represented mistakes in monetary policy. D. Both were keys to ending the Great Depression.