1. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona The Language of the Stock Market Family Economics & Financial Education

2. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Learn About Stocks Review: –Stock is a share of ownership in a company –Stock market is a general term used to describe all transactions involving the buying and selling of stocks and bonds issued by a company

3. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Why Companies Issue Stock When a company would like to grow, it issues stocks to raise funds and pay for ongoing business activities Advantages: –The company does not have to repay the money –Paying dividends is optional Dividends are distributions of earnings paid to stockholders

4. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona 2 Basic Types of Stock Common Stock Vs. Preferred Stock

5. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Common vs Preferred Stock Common stock –Majority of stock is common stock –One vote per share owned to elect company’s board of directors Preferred stock –Usually guaranteed a fixed dividend –Usually no voting rights

6. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Stock Split All publicly traded companies have a set number of outstanding shares Outstanding shares: stocks currently held by shareholders Stock split: Decision by board of directors to increase the number of shares that are oustanding.

7. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Stock Split Example: –2 for 1 stock split: Every shareholder with one stock is given an additional share –The stock price will also divided by 2 Apple: 7 for 1 stock split in June 2014

8. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Stock Classifications

9. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Stock Classifications A variety of type of stocks are necessary for a diversified portfolio Seven basic classifications –Growth, Income, Value, Cyclical, Countercyclical, Speculative, Blue Chip Some stocks can be classified into more than one category

10. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Growth Stock Companies who have a consistent record of relatively rapid growth and earnings in all economic conditions –Substantial chance for growth –Usually does not pay dividends (put revenue back into expansion of the company) –Usually newer companies with innovative products –Examples: Starbucks, Google

11. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Blue-chip Stock Nationally recognized companies with long records of profit, dividend payments, and a good reputation for management –Less risky –Grow at a consistent rate –Examples are McDonalds, AT&T, and General Electric, Coca- Cola, IBM –Video link: http://www.investopedia.com/terms/b/bluechipstock.asp http://www.investopedia.com/terms/b/bluechipstock.asp

12. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona How Well the Stock Market is Doing Overall

13. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Market Indicators Dow Jones Industrial Average (“The DOW”) –Average of 30 largest blue chip stocks traded on NYSE –Includes companies like Disney, Exxon, and Microsoft –Link to video: http://www.investopedia.com/terms/d/djia.asphttp://www.investopedia.com/terms/d/djia.asp

14. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Market Indicators Standard and Poor’s 500 Composite Index (S&P 500) –Covers market activity for 500 stocks –Commonly used benchmark for overall stock market –Link to video: http://www.investopedia.com/terms/s/sp500.asp http://www.investopedia.com/terms/s/sp500.asp

15. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Market Indicators National Association of Security Dealers Automated Quotations Composite Index (“NASDAQ”) –Covers market activity for more than 3,000 stocks listed on the NASDAQ

16. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Ups and Downs The term bull market means the market is doing well because investors are optimistic about the economy and are purchasing stocks (Remember: Bull = Up) The term bear market means the market is doing poorly and investors are not purchasing stocks

17. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Purchasing Stock

18. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona New York Stock Exchange New York Stock Exchange (NYSE) –Located in New York City on Wall Street –Oldest and largest exchange; began in 1792 –Open for trading M-F 9:30 – 4:00 (ET) –Largest and best-known companies’ stocks –Strict requirements

19. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona NASDAQ National Association of Securities Dealers Automated Quotations –Stocks are traded in an over the counter electronic market; no physical location –Many technology companies –Stocks tend to be more “volatile” Refers to uncertainty about stock Higher volatility usually means higher risk

20. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona American Stock Exchange American Stock Exchange (AMEX) –Located in New York City –Began in 1849 –3 nd largest exchange by volume –Its requirements are not as strict as NYSE allowing younger, smaller companies to list

21. 1.12.2.G1 © Family Economics & Financial Education – Revised November 2004 – Investing Unit – Language of the Stock Market Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Supply vs. Demand The stock exchange is organized based upon the laws of supply and demand –Supply is the relationship of prices to the quantities of a good or service sellers are willing to offer for sale at any given point in time –Demand is the relationship of prices to the quantities and the corresponding quantities of a good or service buyers are willing to purchase at any given point in time.