The Stock Market
Entrepreneurship
Mr. Rodrigues
Corporations
• Defined: A Business that is registered by a
state and operates apart from its owners.
• A corporation exists separate from its owners
• Treated as an Artificial Person or Thing
– It pays taxes, hires people, enters into contracts,
accrues debt
– Corporations can have an unlimited lifespan
– Individuals who start a corporation are called
promoters
– Promoters must file Articles of Incorporation with the
state
• Name of Corporation
• Promoters’ Names /Addresses
• Why and how long it will be in business
– Ownership of a corporation is allotted through the
possession of stock.
Very Basic Overview of Stock
• Stock is considered pieces of a corporation
• Stock is split into shares
• People who buy and own stock are called shareholders
or stockholders
– They are all partial owners of the company according to the
amount of stock they hold
• Price follows basic economics
– The greater the number of Shares, the lower the price
– The lower the number of Shares, the higher the price
• The amount of control you have in the company
increases with the amount of stock you own
• Companies issue stock to help fund the corporation
Stock Indexes
• Between the NYSE, NASDAQ and AMEX, there
are thousands of companies that have stock for
sale.
• Some of these companies are more important
than others.
• What we have set up is the Dow Jones
Industrial Average (DJIA) or Dow
• The Dow is made up of ‘key’ stocks that are
characteristic of the entire US Economy.
• These stocks are usually the most widely owned
stocks from the most successful, reputable
companies
Stocks on the Dow
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3M – Sticky Notes, tape
Alcoa – Aluminum
AT&T – Phones / Internet
Boeing – Airplanes,
Defense, Satellites
• Coca-Cola – beverages
• Exxon Mobile – Oil/Gas
• General Electric –
Diversified Industries
• General Motors –
automobiles
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Hewlett Packard- computers
IBM – computer services
McDonalds -- food
Microsoft -- software
Procter & Gamble –
consumer goods
• Verizon -- telecommunications
• Wal-Mart – general retail
• Walt Disney – entertainment
NYSE
• The NYSE is located in New
York, NY on Wall and Broad
Streets.
• It is considered the financial
capital of the US and the
world
• Here, stocks are exchanged
in a traditional manner—a
mix of human interaction and
computerized transactions
NASDAQ
• The NASDAQ is a decentralized stock
exchange that operates completely
electronically.
• Various computers link buyers and sellers
together without any human interaction
occurring.
• Generally the NASDAQ is comprised on
smaller, more technologically advanced
companies
S&P 500
• The S&P 500 is a group of the largest
(most capital) US companies
• Tracking the S&P 500 can provide more
insight into how the overall Economy is
performing
• This group or index is much broader than
the DOW and provides a more
comprehensive look at the economy—
however it lacks the diversity of the DOW
The Securities and Exchange
Commission
• What is to stop companies
you invest in from cheating
you?
• The SEC is a government
agency whose purpose is to
regulate the securities
industry (the stock markets).
It was created after the Great
Depression when Congress
passed the Securities
Exchange Act of 1934.
THE SEC
• All companies traded on the
many stock exchanges across
America have to be registered
with the SEC. Each must follow
rules about what they can do
with their stock, how they can
advertise, and much more.
• SEC rules and regulations not
only pertain to companies on
the Exchange, but to the
brokers that trade, and to you,
the investor.
Insider Trading
• Insider information is information that a
person obtains about a company that is not
available to the rest of the public, that can
be used to their advantage while buying
stocks.
• For example, lets say you are the CEO of
company XYZ, and company ABC is now in
negotiations with you to merge, and create a
much larger company called GHI Inc.
• Now, usually mergers cause stock prices to
go up, so if you, knowing that a merger is
going to take place, go out and buy a lot of
stock from both company ABC, and XYZ,
you are using insider information, and are
breaking the law.
• INSIDER TRADING IS LIKE SELLNG
CRACK, IT’S ILLEGAL but many get away
with doing it because it is hard to track
Annual Reports
• The Securities and Exchanges Act of 1934 also
mandated that companies file an Annual Report.
• An Annual Report is a book printed annually that
contains all of the financial information
concerning a company.
• The annual report was designed to make
companies more transparent and allow investors
real insight into the companies financial health
Buying on Margin
• When buying on margin, you partially
purchase stocks with money that is not
yours—it belongs to the bank.
• The bank loans you the money and
charges you interest—however you may
be able to cover the interest charge with
a success investment
• Since the 1930s, investors must have at
least 50% of the stocks value invested
with cash
Mutual Funds
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In modern times, less people buy individual stocks. They generally invest in Mutual Funds.
A mutual fund is a professionally managed investment that is made up of a combination of stocks.
There are many different types of Mutual Funds available
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Well it was pretty easy to buy a few shares of McDonalds, but what if you are not sure about
which stock you should buy? Maybe you would rather let a professional choose the stocks for you.
Well, you are not alone. Millions of people turn over control of their finances to professionals by
buying Mutual Funds. There are two types of mutual funds, open and closed.
Open mutual funds, such as Fidelity Magellan, let people put their money in them, just like a bank.
The difference is that banks take your money and lend it out, and then pay you interest on the
money you gave it. This is static, in that it does not change. When you put your money in, the
bank usually says we will give you 3 percent interest. When you put your money in a mutual fund,
they take that money, along with that of millions of other people who are investing, and buy stocks
and bonds with it. They then take out part of the profits for themselves, a commission, and give
you your share.
Closed end mutual funds, are similar to their open counterparts in that you turn over control of
your money to professionals but, rather than putting money in them like a bank, you buy shares
like a stock. This means that a closed end mutual fund acts just like any other stock on the Stock
Exchange, they have Ticker Symbols, and are traded. The difference is that these mutual funds,
instead of making burgers, or creating airplanes, take the money they have, invest it, and return
the profits to the share holders.
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