Stock Market

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Stock Market
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Objectives

• Define common and preferred stock.
• Understand the term shareholder.
• Understand how to buy and sell stock.
• Be able to list the three major stock indexes
• Understand how to follow and research stocks and
  mutual funds.
• Define PE, PPE, Vol., YTD, high, low, and
  as they relate to the stock market.
• Understand and explain the different indexes.

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Private Corporations

• Open
• General public (I.e., shareholders)
• For-profit
• Closed
• Sm. group or family owned
• Non-profit
• Not-for-profit
• S Corporations
• Taxed as a proprietorship or a partnership
• Benefits of incorporation
• No more than thirty-six shareholders

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Shareholders

• When a person buys common or preferred stock
• Share certificates - certificate of stock
  ownership a certificate specifying the number of
  shares owned by a person or a company in a
  corporation's stock. No longer used within the
  industry due to modern technology
• Electronic purchases ability to trade within
  seconds

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Stock Certificate from the 19th Century
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Types of Stocks

• Two types of stocks
• Common
• Preferred

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Common Stock

• Most prevalent
• True ownership
• Three rights
• Shareholders Vote
• Right to sell shares
• Right to share in the profits

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Preferred Stock

• Not true owners
• No rights to vote
• No profit sharing dividends set at a fixed rate
• Receives dividends first if firm goes out of
  business

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Stock Indexes

• Three major stock indexes (Remember there are
  many stock indexes)
• NYSE - New York Stock Exchange
• Nasdaq (National Association of Securities
  Dealers Automated Quotation) or Amex (American
  Stock Exchange)
• Dow Jones

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NYSE
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• On the New York Stock Exchange

(How A Stock)
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Owning Stock

• Owning stock means you own a piece of a public
  company.
• These companies span the global economy and form
  the core of our private enterprise system.
• They spur job creation and economic growth while
  creating products and providing services that
  improve our quality of life.

(How A Stock)
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Selling Stock

• When a company needs to raise money to expand,
  it sells stocks or bonds to the public through
  the financial markets.
• More than 90 million Americans own shares of
  stock through individual investments or through
  mutual funds.

(How A Stock)
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The following is an illustration of how a stock
is traded. The illustration looks at three
different perspectives the buyer, seller, and
the stock market professionals who executes the
trade.

• Diane Whitford of Hartford, Connecticut, decides
  to sell 100 shares of Gap Stores stock (GPS) to
  help pay for a new car.

• Roger Smith of Des Monies, Iowa, decides to
  invest in the stock market

(How A Stock)
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• Roger consults a broker who is a member of the
  NYSE. They discuss a number of possible long-term
  investments. Roger asks his broker for a quote
  the highest bid (to buy) and the lowest offer (to
  sell) for a stock at any given time on Gap
  Stores stock (GPS).

• Diane calls her broker, a member of the NYSE,
  and asks for a quote on Gap stores (GPS).

• The brokers access an electronic market data
  system to obtain quotes on GPS from the NYSE
  floor. A number of information vendors offer
  this service to brokerage houses. The
  information vendors get quotes from the NYSE
  system via direct highspeed lines.

(How A Stock)
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• Taking into account what he already knows about
  GPS and after a discussion with his broker
  Roger instructs his broker to purchase 100 shares
  of GPS a the current market price. Or Roger can
  go online and enter the order through his online
  account which links to SuperDot.

• Diane instructs her broker to sell 100 shares of
  GPS at the current market price. Or Diane goes
  online and enters the order through her online
  brokerage account which links to SuperDot.

(How A Stock)
SuperDot is an electronic order-routing system
used by NYSE member firms to send market and
limit orders directly to the trading post where
the security is traded. After the orders have
been executed, SuperDot uses the same electronic
circuit to send post-trade reports back to the
firms. (Order Execution)
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• The two brokers send their orders to the floor
  of the NYSE. Orders can be sent to the floor in
  two ways electronically to a booth around the
  perimeter of the floor and displayed via touch
  screen in an order management system called
  Broker Booth Support System (BBSS).

• Floor brokers are given these orders in printed
  form or by wireless voice or data terminals, and
  represent these orders in the trading crowds. If
  the SuperDot system is used, the order is sent
  directly ot the workstation.

(How A Stock)
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• At the post, the specialist who handles GPS
  makes sure the transactions are executed fairly
  and in an orderly manner.
• The two floor brokers compete with other brokers
  on the Trading Floor to get the best price for
  their customers. The brokers representing Roger
  and Diane agree on a price.

(How A Stock)
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• After the transaction is executed, the
  specialists workstation sends notice to the
  firms originating the orders and to the
  consolidate tape so that a written record is made
  of every transaction.

(How A Stock)
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• The transaction is reported by computer and
  appears within seconds on the consolidated tape
  displays across the country and around the
  world.
• The transaction is processed electronically,
  crediting Rogers brokerage firm and debiting the
  account of Dianes brokerage firm. Both Roger
  and Diane receive a trade confirmation from their
  respective firms within a few days describing the
  trade, its terms and conditions, and conditions,
  and the exact amount to be tendered or credited.

(How A Stock)
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• Roger settles his account within three business
  days after the transaction by submitting payment
  to his brokerage firm for the 100 shares of GPS,
  plus any applicable commissions.

• Dianes trade is also settled in three business
  days. Her account will be credited with the
  proceeds of the sale of stock, minus any
  applicable commissions.

(How A Stock)
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National Association of Securities Dealers
Automated Quotation(Nasdaq)
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Nasdaq

• One of the largest markets in the world for the
  trading of stocks.
• In 2001 more than 4,800 companies were listed on
  Nasdaqmore than on any of the other stock
  exchanges in the United States, including the
  NYSE and the AMEX.
• The majority of companies listed on Nasdaq are
  smaller or less established than most of those on
  the NYSE and AMEX.
• Nasdaq has become known as the home of new
  technology companies, particularly computer and
  computer-related businesses.

(The Nasdaq Stock Market.)
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Nasdaq

• Trading on Nasdaq is initiated by stockbrokers
  acting on behalf of their clients.
• These brokers place orders with certain Nasdaq
  brokers, called market makers, who concentrate on
  trading specific stocks.
• The broker and the market maker negotiate to
  reach a price for the stock.

(The Nasdaq Stock Market.)
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Nasdaq

• Unlike other stock exchanges, Nasdaq has no
  central location where trading takes place.
• Instead, its market makers are located all over
  the country and make trades by telephone and via
  the Internet.
• Because brokers and market makers trade stocks
  directly instead of on the floor of a stock
  exchange, Nasdaq is called an over-the-counter
  market.
• The term over-the-counter refers to the direct
  nature of the trading, as in a store where goods
  are handed over a counter.

(The Nasdaq Stock Market.)
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AMERICAN STOCK EXCHANGE (AMEX)
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AMEX

• AMEX is one of the largest markets for financial
  trading in the United States.
• Based in New York City.
• In 2001 about 700 companies were listed on the
  exchange and the market value of their stocks
  totaled about 100 billion.
• AMEX is the third largest stock exchange in the
  United States, behind the NYSE and the Nasdaq
  Stock Market.

(American Stock Exchange.)
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Dow Jones

• A group of daily and weekly indexes of selected
  stock and bond prices.
• Dow Jones Company, Inc. of New York City
  calculates and publishes the indexes in their
  flagship newspaper, the Wall Street Journal.
• Investors and economists watch the Dow Jones
  averages to monitor the performance of sectors of
  the stock market, the stock market as a whole,
  and the economy.
• Movements of the indexes up or down influence
  when and how investors buy or sell securities,
  and may also influence national economic policy.

(Dow Jones Averages.)
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Dow Jones

• There are seven Dow Jones indexes that are used
  most often by investors and financial analysts.
• Three of the indexes are daily averages of the
  cost-per-share of selected stocks in three major
  economic sectors
• industry
• transportation
• utilities.

(Dow Jones Averages.)
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Dow Jones

• Another Dow Jones stock index, the Equity Market
  Index, is an average of the cost-per-share of a
  wide variety of stocks traded on the New York
  Stock Exchange (NYSE), the American Stock
  Exchange (AMEX), and The Nasdaq Stock Market.

(Dow Jones Averages.)
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DOW Hour by Hour
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Abbreviations

• PE is stock price-to-earnings
• ratio based on earnings per share in last four
  announced quarters.
• PPE is projected P/E ratio
• based on analysts consensus earnings estimate
  for the next four quarters.

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Abbreviations

• Vol - indicates whether there was unusual sales
  volume activity in a stock.
• An indicates that yesterdays volume matches
  that average.
• SP

Standard Poors Index
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Stock Market Activity

• Research five companies this week.
• No Beverage - Brewers
• (Alcoholic Companies - Anheuser-Busch Companies
  Inc., Molson Coors Brewing Company, etc.)
• No Immoral Companies
• (Playboy Enterprises Inc., Hustler Magazine,
  etc.)
• Research Source http//finance.yahoo.com/lookup

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Finding the Ticker Symbol and type of industry
the company is associated with in the market of
business.
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If you do not know the trading symbol type in the
name of the company here
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Example To research DirectTV I would come up
with this page.
This is the Tickler Symbol and the type of
industry
Click on the symbol!
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We will ONLY deal with the LAST PRICE and the
CHANGE
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Scroll down to find the profile page!
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Read the company profile and look at the history
of the company. Use other internet research tools
to aid you in researching your companies.
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Stock Market Assignment

• After your research is complete and you have
  chosen five companies it is time to begin your
  assignment.
• Next Monday, after the close of the market (4pm
  EST), you will purchase 10,000 worth of stock
  using only the five companies you have chosen.
  (Try to come as close as you can to 10,000
  without going over!)
• Use the charts provided to keep track of your
  stocks daily. The charts will be checked each
  class session.
• A week from Monday you may sell and buy stocks,
  however, you must maintain five companies at all
  times with no more and no less than five.
• All stocks are to be sold the second Friday at
  the close of the market and the stock market
  report should be completed. All charts and
  reports will be due the following class session.

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Stock Market Survey Chart
DTV
Company Symbol
Amt. of shares
100
Company Name
DirectTV
Type of Company
Communication
Last the day you sell
Sell price
Purchase Price
22.07
22.07
2/9/09
-----
-----
2207.00
2/10/09
2/11/09
2/12/09
2/13/09
2/16/09
2/17/09
2/18/09
2/19/09
2/20/09
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Tracking a Stock - Use the last trade price as
the purchase price

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Each day track the last trade price of the day
and keep track of whether your stock made a
profit or a loss.
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Good Luck!

• The student with the greatest profit and greatest
  loss will receive a homework pass and a fabulous
  prize.

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Works Cited

• The Nasdaq Stock Market." Microsoft Encarta
  Online Encyclopedia 2007. 27 Jun 2007.
  http//encarta.msn.com/encyclopedia_
  761588166/The_Nasdaq_Stock_Market.html
• American Stock Exchange." Microsoft Encarta
  Online Encyclopedia 2007. 27 Jun 2007.
  http//encarta.msn.com/ encyclopedia_761588049/Am
  erican_Stock_Exchange.html
• How A Stock Is Bought And Sold. NYSE Euronext.
  27 Jun 2007. http//www.nyse.com/pdfs/StockBought
  AndSold.pdf
• Order Execution NYSE Euronext. 27 Jun 2007.
  http//www.nyse.com/productservices/nyseequities/
  1095202040263.html
• Dow Jones Averages." Microsoft Encarta Online
  Encyclopedia 2007. 27 Jun 2007.
  http//encarta.msn.com/encyclopedia_
  761588100/Dow_Jones_Averages.html