Why would someone want to buy stock?

Why would someone want to buy stock?
Pair-Share What is stock? Why would someone want to buy stock? Do you think you will speculate in the stock market some day?

Stock An instrument that signifies an ownership position in a corporation. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. For example, if a company has 1000 shares of stock outstanding and a person owns 50 of them, then he/she owns 5% of the company.

Share Certificate A legal document issued as proof of ownership in a firm. In the modern stock markets, the 'paper' share is now being replaced by the 'electronic' share.

Stockholder A person who owns stock in a corporation
Along with the ownership comes a right to declare dividends and the right to vote on certain company matters, including the board of directors.

Broker The person who works on behalf of a investor in the stock market to buy and sell stock

Dividends Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders.

Prospectus a printed statement that describes a business and that is distributed to prospective buyers, investors, or participants

Line of Credit A loan of money.
Interest (a percentage of the loan) must be paid on the amount of the loan. If you are given a 1000 dollar loan at 10% interest, you pay 100 dollars.

Buying on Margin A risky technique involving the purchase of stocks with borrowed money, using the shares themselves as collateral.

The Stock Market Game

Directions: The Stock Market Game
You have a list of companies in front of you. Most of the stock companies existed in the 1920’s. Some became successful, others failed.

Read each prospectus and decide which stocks you want to purchase.

Each student will get a worksheet: “Stock Record”

In the game there will be 7 price changes between 1920 and 1929, when the game ends. You will have opportunity to buy and sell stock between each round.

Each student is given $500 to invest and a pre-approved credit line of $300. $100 x 4 $50 x 1 $10 x 5

All company stock prices start at $10 per share in 10-share certificates (beginning price of $100 per certificate)

After the 1929 announcement the market closes and each student will calculate the total for all of their stock certificates at the current market value (less any outstanding debt). The student with the most money at the end of the simulation is the WINNER!

Complete your worksheet Now!
Remember all company stock prices start at $10 per share in 10-share certificates (beginning price of $100 per certificate) This means you can buy stock in up to 5 different companies. You can choose to use your line of credit ($300) or not! If you don’t use it, you lose it. You must use all your cash ($500) to purchase stock.

The Stock Market it now open!!! You have 5 minutes to buy stock!!!
Announcement! The Stock Market it now open!!! You have 5 minutes to buy stock!!!

The Stock Market is now closed!!!
Announcement! The Stock Market is now closed!!!

Important Company Information
1920 Stock Important Company Information Price Per Share Kroger Purchases a West Coast food chain. $12 Radio Corp. New model released with built in antenna $13 Mammoth Oil 9 wells begin producing in Wyoming Field $14 Gotham Bank Bank declares a 6% dividend $11 Durant Motors Fails to make payment on notes to the Gotham Bank $7 Midland Power –Midland extends services into Michigan and Wisconsin Kansas Pacific K & P will pay no dividends this year because of the expansion into the Southwest $9 Tele-Tone Dial telephones will be installed in parts of the New York City $15 Add the current stock prices on your worksheet under the year 1920

The Stock Market it now open!!!
Announcement! The Stock Market it now open!!! You have 4 minutes to buy or sell stock!!!

1922 Stock Important Company Information Price Per Share Kroger Merger with large Eastern chain of stores $15 Radio Corp. 15 patents are purchased from the Edison Company $14 Mammoth Oil Largest oil field in America may be located under Mammoth Oil Lease in Tea Pot Dome, Wyoming $19 Gotham Bank Stock price remains the same $11 Durant Motors Automobile sales are depressed because of competition from Ford Motor Company $5 Midland Power Insull’s financial manipulation allows Midland to take control of Commonwealth Edison Kansas Pacific Profits rise as agricultural shipments from the Southwest begin $10 Tele-Tone New York Stock Exchange announces that Tel-Tone has shown the greatest increase of any stock on the exchange $22 Add the current stock prices on your worksheet under the year 1922

The Stock Market it now open!!!
Announcement! The Stock Market it now open!!! You have 4 minutes to buy or sell stock!!!

1923 Special News Bulletin! President Harding is suffering from a coronary seizure and may have pneumonia. He is reported to be dying.

1923 Special News Bulletin! Harding Dies

1923 Stock Important Company Information Price Per Share Kroger $13 Radio Corp. Mammoth Oil $16 Gotham Bank $10 Durant Motors $4 Midland Power $19 Kansas Pacific $9 Tele-Tone Add the current stock prices on your worksheet under the year 1923

1925 Stock Important Company Information Price Per Share Kroger Corn blight on Kroger farms causes 90% loss of crop $12 Radio Corp. Speculation on new patent causes rise in stock prices $15 Mammoth Oil Japanese offer to buy the total production of Elk Hills $21 Gotham Bank French Government announces that they will begin to pay their World War I war debts to the U.S. banks Durant Motors The DuPont family begins to buy large blocks of the Durant Motor stocks $7 Midland Power Cyrus Eaton of Cleveland may be trying to take over Midland by purchasing large quantities of Stock $22 Kansas Pacific Speculation on increased profits from holdings in Mexico cause stock price to rise $11 Tele-Tone Announces completion of successful merger. Speculation on the market continues. $24

1927 Stock Important Company Information Price Per Share Kroger Rumored merger with the Edison Company causes stock to rise $14 Radio Corp. Speculation on new patent causes rise in stock prices $15 Mammoth Oil Congressional committee begins an investigation of the Mammoth Oil leases. Possible Fraud. $13 Gotham Bank Bank stocks remain unchanged $12 Durant Motors Louis Chevrolet is hired to deign an inexpensive automobile $10 Midland Power Cyrus Eaton begins dumping large blocks of Midland stock on a depressed market $18 Kansas Pacific Drought in the Southwest depressed farm prices cause profits of K&P to fall. Tele-Tone Drop of two points caused by J.P. Morgan selling 200,000 shares Brokers see only temporary setback $22

1928 Stock Important Company Information Price Per Share Kroger Food prices are depressed because of agricultural surpluses $13 Radio Corp. Merger with the Edison Company falls through when Radio Corp. pays no dividends $14 Mammoth Oil Harry Sinclair is called before Congressional committee Secretary of the Interior Fall is indicted for fraudulent oil leases $7 Gotham Bank Announces profits have increased by 5% over the last quarter $16 Durant Motors Durant Motors and Fisher Body have announced a merger. New Corporation will be called General Motors. Midland Power Reports in the Chicago Tribune disclose Insull’s Company is a “House of Cards” ready to crumble $18 Kansas Pacific New oil fields in Oklahoma cause a new boom along Kansas Pacific track.. $12 Tele-Tone Fails to rise as predicted. Brokers are unable to explain the downward trend. $22

1929 Special Announcement Wednesday, October 23, 1929
The Market slipped today as the government announced that home construction, an indicator of prosperity, was at an all time low. The Federal Reserve Board also announced that a change in the prime interest rate would take place in the near future; speculation on the stock market is getting out of hand. It is rumored that the House of Morgan intends to sell 12 million shares of common stock at a loss, before interest rates change. The Gotham Bank announced that margin buyers of stock are being notified that they must put up more money to cover today’s losses.

Tuesday,October 29, 1929 (Black Tuesday)
Panic hits Wall Street. 12 million shares are traded in one day on the New York Exchange. $700 is lost by stock holders in one day as the market takes the greatest dive in history Stock Prices Per Share Kroger $8 Radio Corporation $4 Mammoth Oil $2 Gotham Bank $12 Durant Motors $12 Midland Power $3 Kansas Pacific $8 Tele-Tone $6

The End of the GAME! Calculate the total for all of your stock certificates at the current market value (less any outstanding debt). The student with the most money at the end of the simulation will be the WINNER!

Review Questions: Why do you think you were successful (made a profit) or not (lost money)? What will happen to the bank if thousands of people are unable to pay their loans back? What do you think would happen if the banks went out of business? What do you think would happen to the companies used in this simulation after the stock market crashed? What would happen to the people who worked for those companies? If you were living during the Great Depression and lost your job and all your money in the stock market and/or because of bank closures what could you do to survive?

Why would someone want to buy stock?

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