What is a Stock Market?

Where do you go to buy CDs, jeans and books? –Just like a market for CDs, jeans and books, there is a market for stocks People buy stocks to receive dividends and they anticipate increased stock price

What is a Stock Market? Firms sell stocks to receive financial capital to use to expand the business Sold through brokers –Person who acts as a go-between for buyers and sellers of stocks and bonds.

Stock market –Mechanism whereby people who want to own shares of stock can buy from people who want to sell shares of stock What is a Stock Market?

Stockholder –People who have invested in a corporation and own some of its stock. Asset –All items to which a business or household holds legal claim. What is a Stock Market?

Capital Gain –Increase in value of an asset from the time it was bought to the time it was sold. Capital Loss –Decrease in value of an asset from the time it was bought to the time it was sold.

What is a Stock Market? Dividend –Portion of a corporation’s profits paid to its stockholders.

What is a Stock Market? Common Stock –Shares of ownership in a corporation that give stockholders voting rights and a portion of future profits.

What is a Stock Market? Preferred Stock –Shares of ownership in a corporation that give stockholders a portion of future profits but no voting rights.

What is a Stock Market? 3 different stock markets –NYSE –AMEX –NASDAQ

What is a Stock Market? New York Stock Exchange (NYSE) –Founded in 1792 –About 2,800 companies listed –Dow Jones and S&P 500 –Listed companies must have at least $100,000,000 in outstanding stock and trade an average of at least 100,000 shares per day –1,366 member seats

What is a Stock Market? American Stock Exchange (AMEX) –Founded after Civil War –More than 800 companies listed –Listed companies must have more than 500,000 shares outstanding and trade an average of more than 1,000 shares per day –807 member seats

What is a Stock Market? National Association of Securities Dealers Automated Quotations (NASDAQ) –Founded in 1971 –More than 3,700 companies listed – Consider the home of tech stocks –No physical location; trades done via computer network –Largest market in terms of stocks traded –No fixed number of seats

What is a Stock Market? Dow Jones Industrial Average (DJIA) Standard and Poor’s 500 (S&P 500) Securities Exchange Commission (SEC) Regulatory agency of the stock market

Bull/bull market –A bull is an investor or analyst who believes that the price of a security or security prices in general will rise. A bull market is an extended period of rising prices for a security or the securities market in general. What is a Stock Market?

Bear/bear market –A bear is an investor who believes that a security’s price or security prices in general will go down. A bear market is an extended period of price decline for a security or the securities market in general.

October 4, 2015What Are Mutual Funds?19 What Are Mutual Funds? A mutual fund is an investment company that pools the money of many individuals to buy stocks, bonds, or other investments. The investment club shares all profits and losses, thereby lowering overall risk to the investor.

October 4, 2015What Are Mutual Funds?20 Lesson 7 Visual 2 Types of Mutual Funds Low Risk and Low Potential Reward High Risk and High Potential Reward Money- market funds (short-term securities) Bond funds (corporate or longer- term government bonds) Income funds (high- yield stocks and bonds) Growth funds (larger company stocks long- term capital gains) Aggressive growth funds (smaller company stocks; short- and long- term capital gains)

October 4, 2015What Are Mutual Funds?21 Initial investment Company Price per Share No. of Shares Owned Amount Invested Investment Value 1 Year Later American Cellular $ 5100$ 500 Big Box Stores $ 2050$1,000 Biotech Industries $ 1000 General Grocery $ 2000 Giant Auto $ 10100$1,000 Gold Mining Group $ 5100$ 500 Total Investment Value XXXX $3,000

October 4, 2015What Are Mutual Funds?22 Company Price per Share No. of Shares Owned Amount Invested Investment Value 1 Year Later American Cellular $ 8100$ 500$ 800 Big Box Stores $ 2350$1,000$1,150 Biotech Industries $ 800$ 0 General Grocery $ 2200$ 0 Giant Auto $ 11100$1,000$1,100 Gold Mining Group $ 4100$ 500$ 400 Total Investment Value XXXX $3,000$3,450 One Year Later: An Example