Basic Facts about buying stocks A person who buys stock becomes one of the company’s owners. The purchase leads to a share of a company. A bond is an agreement to lend money to a company for a certain period of time. Companies sell stocks and bonds to people because they need money and want to expand. Sometimes they want to build more factories or develop better products.

You give money to a stock broker He invests money with the company you choose You receive a piece of paper that proves you invested in a company, giving you some “ownership”

If a company makes profits it can use the earned money in a few ways. It may decide to invest more into the company and expand. Mid 2006 Apple fell to $60 a share. Today it’s $600 a share. So if you bought 3 shares (3 x $60= 180) in 2006 And left your money with the company, you would have made a profit of $1,620!

IT’S A RISKY GAME!! Buying stock is also a risky business. If you buy a share of a certain company and it does well over the years the value of your shares will go up. You could sell them at a much higher price than when you bought them (like an auction). Sometimes, however, things happen that make the value of certain stocks go down. If a company does badly or goes bankrupt the value of your shares goes down too and you actually lose money.

How does the Stock Market work?

Optimistic mood where everything seemed fine People put savings into stock market hoping to get rich

You will need to understand this before moving on!

1. Speculation: Buying stocks you think may rise in price, then quickly selling them for profit.

Buying on Margin Investor pays fraction of price (5%) & borrows the rest from stock broker. Similar to: Installment plan 2.

Calling in Margins: 3. Stock brokers want people to repay their loans NOW!

Stock market: similar to a credit card and cash Kevin wants to invest in the stock market, because there is speculation that the “American Can” company will expand and be the number 1 selling canned goods company. (everyone loves canned fish! <3) Kevin only has $20 to invest, but wants $100 dollars worth of shares ($1 per share). So the stock broker will mark Kevin down as buying 100 shares and will only require Kevin to pay 5% right now. This is buying on margin, similar to using a credit card. Kevin thinks he can repay the his broker once the stock rises. If speculation rumors are true, the shares would be worth $2, instead of $1 (which is how much Kevin paid). So if Kevin sold his shares, he would make a profit of about $100. The stock broker makes margin calls, and asks Kevin to pay for all the shares he bought in cash. However, the stock did not go up as speculated, and Kevin can not repay!!!

Wall Street in NYC today

market value of all stocks = $27 billion 1928: stock values rose by almost $11.4 billion Oct stock values hit $87 billion

5 top bankers meet to try & stop it by buying stocks On Friday stocks rally on rumors of meeting NY Stock Exchange crashed Thursday, Oct. 24, 1929

Oct 24= Bankers have discussions about events.. Wall Street, NY

Monday Oct. 28, 1929 The day starts, and investors want to sell their stocks to get their money

Tuesday, Oct. 29, 1929 “The most devastating day in the history of markets” AKA: Black Tuesday

Oct 29– Waiting in Panic

$30 Billion in stock disappeared $150 Million in Margin Calls were made Repaying Borrowed money

People didn’t have $$$ to pay for their stocks! Most of the people never paid the full price when they bought stocks. People only paid a small fraction of the price, traded it to buy a share in a different company, and still never paid the original debt. Therefore, a lot of the money in the stock market “disappeared” since it was never really invested from the start.

-Brokers forced to sell -stocks had no value FYI: Banks could invest savings $$$ in the market! Other investors panicked & sold

The crash affected people who were not even investors b ecause the bank put people’s savings into investments in the stock market! But savings deposits were not insured by gov’t so they were lost as well

People did not buy stocks anymore, all they did was SELL. Public confidence is shattered