Upper School Technology Elective

 Common stock is stock held by the majority of the public. This type of stock has voting rights, the right to dividends and liquidity, meaning that it is easy to buy or sell the shares.  Preferred stock holders have fewer rights than common stock but they are the first receive dividends.  Dividend distribution is the way the company distributes a portion of profits to its shareholders.

 As a stock holder you have limited liability. If the company loses a lawsuit and must pay a judgment, the worse case scenario is that the stock becomes worthless and you lose your investment. You have no personal liability. Your liability is limited to the value of your investment.

 Stocks- when you purchase a share of a company’s stock, you own a part of the company. This stock comes with voting rights and you may collect profits, if the company distributes them in the form of dividends. Stocks

Market Indexes  Dow Jones Industrial Average (pulse of the market)  Standard & Poors 500 (S&P 500)  NASDAQ

 The numbers in the indexes represent changes from an original or base value. The number is not important, what is important is the percentage of change over time.  This movement up or down give an indication of how the index is performing.

Dow Jones Dow Jones  Dow Jones Industrial Average is the oldest and most widely known index and the most widely quoted index.  Only 30 stocks are used to obtain the average. Each represents one of the most influential companies in the United States with annual revenues in excess of $7 billion.  DOW only represents one fourth of the total market.

 Value changes are indicative of investor confidence in the stocks. This index does not represent small or mid-sized companies at all.

Standard & Poors 500  S & P 500 is the most frequently used index by financial professionals as representative of the market. It includes 500 of the most widely traded stocks and leans towards larger companies. 70% of the market’s total value is more closely represented than the DOW index.

NASDAQ NASDAQ  NASDAQ Stock Market Composite is made of more than 5000 stocks. It is heavily weighted in technology stocks. It is also a market cap. weighted-index.  Small and speculative companies in NASDAQ make the index more volatile than the DOW and S&P 500. It does not represent the market but is a good indicator of where technology investors are going.

Market Capitalization  Market Capitalization or mkt. cap. measures the size of the company. It is found by multiplying the current stock price by the number of outstanding shares.  This weighted index gives more importance to larger companies. For instance, changes in Microsoft stock will have a greater impact than almost any other stock in the market.

Investing  Investing is the proactive use of your money to make more money. It is different from saving. Saving is passive. Savers are concerned with protecting their initial deposit or investment and less concerned with the return. Savings accounts are federally insured (FDIC), if the bank the funds are deposited in participates in the program. This insures that savers’ funds are protected if the bank fails.

 In investing the focus is on the return. There is risk involved in investing. The risk can be conservative to very aggressive with various types of risks in between.  Stock characteristics that differ from saving include ownership, upside potential and risk.

Stock Ownership  Ownership, in that to buy a stock share is to buy a piece of the company. As an owner, you have certain rights such as voting on important matters and participating in profits if the company issues dividends.  Saving deposits do not provide part ownership of the bank the funds are deposited into. If you buy a bank Certificate of Deposit (CD) you do not own part of the bank. You may own a US Treasury bond but this is not to say that you own a piece of the federal government.

Upside Potential  Upside Potential occurs when the stock grows as the company grows, allowing you to participate in the growth of the company. As the value of the company goes up, so does the value of your investment. If profits increase, you may receive a bigger dividend check.  For example, many of Microsoft’s initial employees are millionaires because the value of their stock has drastically gone up in value.

 There is little or no chance of the bank where you have your CD raising the interest rate after you’ve entered into a CD agreement.

Risk  Risk is inherent in owning stock. Since there is a potential for gain, there is a potential for loss. This is the good and bad concept of investing in stocks.  You can lose your shirt when you decide to invest in the stock market. But the prospect of an increased return on your initial investment is greater than a savings account.  A savings account trades security for return, in other words, you get little for your money.

Why do stock prices go up or down?  Stock prices go up because there are more buyers than sellers and the buyers will bid higher prices than the stock is currently selling.  Stock prices go down when there are more sellers than buyers. The sellers will accept lower bids for those shares in order to sell them.  This is “Supply and Demand” in Economic terms.