Stock Market

Smart Investing is an introduction to the stock market and making good investments through research and facts.

Introduction

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What is the Stock Market?

The Stock Market is where the buying and selling of stock (or shares) in all types of companies takes place.  The United States has two major stock exchanges for the purpose of buying and selling stock, the New York Stock Exchange on Wall Street and the NASDAQ (the National Association of Securities Dealers) which is a computerized trading market.  Anyone who wants to buy and sell stock  is purchasing or selling part of a company. 

Why do people buy stocks?  Investors buy stock in the hope that a company will make money from the sale of its products or services.  The profits from the business belong to the shareholders.  For example, if you buy stock in Apple, Inc., and its sales increase this year from the sale of the next generation of IPADS, the price of the stock will rise.  If the price of the stock goes up above the price you paid and you sell your stock, you have made a profit.  That extra money is yours and you did not have to work to earn it.  Instead, you invested your money and let it work for you.

There are risks associated with buying stocks.  Suppose that the sale of IPADS is not good this year.  Apple stock could drop in price because its profits are reduced.  In this case the shares you own in Apple may be worth less then you paid for them.  If you sell your stock at this point, you will have a loss.  You lose part of the money you originally invested.  This is the reason some people are afraid of investing their money in stocks.

Many people buy and sell stocks through their stockbroker.  Some brokers will advise you on the stocks that you are buying and selling for a fee.  If you do your own research on companies, you may not need their advice and you can buy and sell stocks from an on-line site or a discount broker.

Why would a company want to sell its stock to investors?  A company may want to create new products or sell its products all over the world.  To expand its business a company needs money.  A company has two options, it can borrow the money from a bank or it can sell shares of stock in its company.  When a company borrows from a bank it has to pay interest on the money it borrows.  When a company issues common stock it doesn’t cost the company interest.  The company gives up part of its ownership to stockholders in return for cash.  By issuing new stock the company agrees to share the profits and losses from the new products or services with shareholders.  Both the risk and the reward are shared by all the investors.

Why is there a stock exchange?  The New York Stock Exchange (NYSE) and the NASDAQ are organizations that provide an outlet for the orderly purchase and sale of stocks.  These exchanges provide  a place for the investor to trade stocks easily and quickly.   If you want to sell your house, you have to find a buyer and it can take a long time.  Stocks can be traded in the market on any business day and the trade takes place instantaneously in most cases.   As an investor, you could sell Apple, Inc. and buy Coca Cola, Inc. in a minute’s time. 

How do you know what stocks to buy?  One way to decide would be to follow trends.  The value of a company’s stock can be affected by all kinds of events.  Some events are seasonal.  For example, an ice cream manufacturer usually has more sales in August than January.  Its stock might rise after the summer sales and drop some in winter when sales of ice cream slow down.  Another trend could be a technology breakthrough.  If you invested in a company that sold typewriters when word processing was becoming popular, your stock probably lost money.  So, whether or not a company’s products are in demand is an important trend to consider.   Other trends have to do with what is reported in the media.  A product recall due to safety issues could harm the stock of a company.  If a toy is reported to be unsafe, people will stop buying it and the stock could lose value.  What if you are a shareholder in a company that is the only producer of an important drug that people need?  Chances are that your stock will go up in value.  On the other hand, if you own stock in a company that has many competitors and the products are easy to copy, the stock may be riskier to own.  These are a few of the trends that you want to consider as you invest in the stock market.  

TASK

  

Your task is to familarize yourself with the stock Market.  This is one example of how we use rational numbers in the real world.  Answer some basic questions about the stock market.  Pick a company you would like to invest in.  Find the ticker symbol, price of stock and the change in price of the stock for 5 days.  You will then find the average of the change in price for those 5 days. 

1.  Read the introduction and answer the questions about the stock market.

2 Find a company to invest in.  You need to find the ticker symbol.  Go to   http://www.marketwatch.com/tools/quotes/lookup.asp  Sometimes the company you are looking for is owned by another company.  If it says there is no symbol, go to google and search for the owner of the company.

3.  After you find the ticker symbol, go to http://finance.yahoo.com/  Enter the symbol to search for the quote.  Find the price of your stock and the change.  This is the number next to the price.  A decrease in price will be in red and have a down arrow.  An increase in price will be in green and have an arrow pointed up.

4.  Find the price and change in price from the previous day for 4 more companies. 

5.  Average the changes in price for the 5 companies that you choose. 

 

You will be graded on the following:

I.  Questions answered about the stock market   15 points

 

II.  1st company:  Price and change in price     5 points

     2nd company:   Price and change in price   5 points

     3rd company:  Price and change in price    5 points

     4th company:  Price and change in price    5 points

     5th company:  Price and change in price    5 points

III.  Average of the change in price for the five companies:  50 points

IV.  Conclusion questions                                  10 points

Total:     100 points

Congratulations!  You have completed the Stock Market webquest. This is a very brief introduction into the stock market.  You have learned about one example in the real world where understanding rational numbers are useful.  What else would you need to know about a company before you invest in it?  Please write what information would be helpful in making a decision whether to invest or not. 

Feel free to navigate through the yahoo finance website to familiarize yourself with stocks.  Who knows...you may want to choose this as a career later in life!