Home of the
Bulls
and the
Bears
Can you think of a product that has
been so wildly successful that you
wish you were the person who
originally thought of it?
Imagine how well off you would
be if you had started Nike, the
athletic shoe company!
The truth is, you don’t have to be the next hamburger
magnate or the brains behind a hot-selling tennis shoe.
With a little money and a lot of ingenuity, you can get a cut
of the action, too.
How?
By investing in the stock market. When
you buy stock in a company, you become a
part owner. And with ownership comes
the opportunity to cash in on the company’s
success.
Taking Stock
• Only companies that are incorporated under
state and federal laws can “go public,” or sell
stock.
• There are two basic types of stock:
– Common and Preferred.
• Common stock …is the most common!
– Dividends – the money paid to stockholders – are
determined by the corporation’s board of directors.
– If the company had a good year, the board might
increase the dividend.
Common Stock…
• Is the most common!
• Dividends
– The money paid to stockholders,
– Are determined by the corporations board
of directors.
• If the company had a good year, the board
might increase the dividend, and…
• If the company had a bad year, or if the board
decides the corporation needs to reinvest
some of its profits to make it stronger, it may
decide to cut the dividend or even omit it!
Preferred Stock
• Is so called because its stockholders receive
preferential treatment.
• Preferred shareholders are paid their dividends
first and the dividend is not based on the
corporation’s profits. The amount is fixed.
• Even if the company has a very profitable year,
the stockholder only receives the specified
amount. It can be withheld if business is down
but must be paid later.
More on Preferred Stock
• Preferred stock is less risky than common
stock, but it does not offer the opportunity
for exceptionally high dividends.
• AND… most preferred stock carries no
voting rights, whereas common
stockholders vote for members of the
board of directors and decide important
issues.
The New York Stock Exchange
• Stock is bought and sold on stock
exchanges.
• The largest and most prestigious is the
New York Stock Exchange, abbreviated
NYSE.
• The “Big Board,” as it is called is located
on Wall Street in New York City.
The Origins of the NYSE
• In the 1700’s an informal gathering took
place for merchants and traders to buy
and sell stocks of banks and insurance
companies.
• In 1792, they decided to meet at the same
time every day under an old sycamore tree
on Wall Street to take orders to buy
and
sell stocks.
On the Floor of the NYSE
• At 9:30 a.m. EST every business day, the world’s most
fascinating financial drama begins and ends at 4:00 p.m.
• The trading floor is the size of a football field and five
stories high.
• The floor is described as “organized chaos.”
• It is noisy and crowded as brokers, clerks and
messengers dart about (no running is allowed) the four
rooms that make up the trading floor.
• All 3,000 people who work here buy and sell stock for
customers at the best possible price.
Other Exchanges
• The American Stock Exchange – abbreviated
ASE or AMEX.
– Formed 60 years after the NYSE.
• The National Association of Securities Dealers
Automated Quotation System
– NASDAQ, an automated communications system lists
about 5,000 companies.
– This is the Over-the-Counter market, OTC, and offers
shares of smaller, younger companies.
– Almost all new issues trade here before graduating to
the NYSE or AMEX.
High-Tech Trading
• One of the strengths of the system is fairness; an order
for 100 shares from a factory worker in Detroit competes
equally with an order for a million shares from the
nation’s largest pension fund.
• Thousands of electronic devices on the trading floor
practically eliminate paperwork and processing errors.
• Every trade on the NYSE floor is recorded on the stock
ticker, an electronic device that reports transactions
shortly after they occur.
• An order placed in Los Angeles can be processed in
New York within 30 seconds.
Bulls and Bears
• Popularly used to
describe ups and downs
in the market.
• If the market is called
bearish, that means more
people want to sell stocks
than buy them. Share
prices then fall.
• If it is bullish, more
people want to buy than
sell, and prices rise.
Reading the Stock Tables
• The newspaper, particularly the financial
section, is an investor’s best friend.
• Stories printed daily provide clues that can
help investors spot trends useful in
developing investment strategies.
• The daily stock market quotations report
on the previous day’s trading activity.
• Reading the newspaper stock table is not
difficult.
The total value
of the stock
listed on the
NYSE is $3.9
trillion, making
the exchange
the largest in
the world.
Here’s the Information
• 1.Company Name – The name of the
company is abbreviated. The names are
alphabetized by the company’s full name,
not by the abbreviation.
• 2.Dividend (DIV) - This indicates the
ANNUAL payment per share. Dividends
are usually paid quarterly, every four
months the stockholder will be paid ¼ the
amount shown.
Info Continued
• 3.Price Earnings Ratio (PE) – The PE ration, or
yield, is the price of the stock divided by its
earnings per share. High PE stocks are typically
young, fast growing companies.
• 4.Sales Volume or Number of Shares Traded –
The trading volume for the day is listed in
hundreds. If the number is 56, then 5,600
shares were traded that day. If a “z” precedes
the number, then that was the actual number of
shares traded. i.e. z30 means 30 shares were
traded, not 3,000.
Info Continued
• 5.Close – This number is the last trading price
recorded when the market closed for the day. It
represents the price of one share.
• 6.Net Change or Change – This is the difference
between the last closing price reported for the
day and the last closing price reported for the
preceding day. A “-” before the number
indicates the stock price was down by that
amount. A “+” indicates the stock price was up
by that amount.
Stock Table Footnotes
• 1. pf – This indicates the listing is for
preferred stock – shares that have a fixed
rate of return. (If there is no “pf” following
the company’s name, it is common stock.)
• 2. s – This means the company has had a
stock split within the last 12 months.
• 3. n – This stands for “new issue.” It
means the stock has just been offered
within the last 12 months.
Footnotes Continued
• 4. u – This letter next to the 52-week high
figure means the price is a new high within
the last 52 weeks.
• 5. d – This letter next to the 52-week low
figure indicates the price is a new low
within the last 52 weeks.
• 6. v – Trading halted.
• 7. vj – In bankruptcy or receivership.
Buy Low, Sell High…
• When you decide to buy stock, the first person
you want to talk to is a stockbroker.
• Stockbrokers work for a stock brokerage, or
brokerage house.
• They buy and sell for you, and for this service,
they earn a commission or fee.
CharlesSchwab
Orders to Buy, Orders to Sell
• When a stockbroker buys or sells stock for a
customer, it is called “placing an order”.
• There are different types of orders:
– A market order is an order to buy or sell immediately
at the best price available.
– Buying “at the market” is the most common form of
trading.
– A limit order specifies a price;
• Example: You tell the broker to buy 100 shares of Nike at
$50.25 per share, but the price has climbed to $50.75 by the
time your order reaches the floor, no sale will take place.
Round Lots and Odd Lots
• Stock orders can be
placed in either round
lots or odd lots
– A round lot is 100
shares,
– Any order less than
100 shares is
considered an odd lot.
Fluctuating Prices
• Fluctuations in the price of a stock during the
trading day can be explained by supply and
demand.
– When a lot of people want to buy; the stock price will
rise.
– When most people want to sell, the price will fall.
• The price may rise or fall due to:
– Factors affecting the company or industry.
– Whether the stock market as a whole is moving up or
down.
– Current events, either national or global.
– Or for no apparent reason!
AP Business
What Causes the Market to
• Ups and downs in the stock market are perfectly
normal; the bear and the bull balancing each
other.
• When many people rush to sell their shares, the
balance is thrown off and gets out of kilter.
• In stock market terms…IT CRASHES.
• The greatest crash to date occurred in 1929,
thereafter known as Black Thursday.
What Happened on Black Thursday
• Stock prices plummeted as investors suddenly decided
to sell their stocks for a profit.
• As other investors saw stock prices begin to fall, they too
hurried to sell.
• The frenzy of selling activity had a negative impact on
the country for years afterward.
• With nobody investing money in the stock market,
businesses could not grow.
• When businesses failed, people lost their jobs, and
without paychecks they could not buy goods and
services.
• Still more businesses failed and there was a tremendous
economic decline lasting about 12 years.
Takeovers, Mergers and Tender
Offers
• A merger is the acquisition of one
company by another.
– It occurs when one company purchases
enough shares of another company’s stock in
order to have a controlling interest.
– Mergers must be approved by the company’s
board of directors and shareholders.
• If the merger does not have the
cooperation of the target company’s
board, it is called a takeover…
Takeovers
• A takeover is accomplished in one of three ways:
– By buying up a company’s stock on the open market,
– Buying its stock through private transactions,
– Or issuing a tender offer to the company’s board of directors.
• A tender offer is an offer to buy a company’s stock at a stated
price and by a stated time.
• To gain control of the target company, the tender offer price is
usually above the current market price.
– A takeover becomes hostile when the
target seriously objects to being
acquired and nothing, not even a
higher price, is likely to change the
board’s mind.
Other Stock Concepts
• Stock split - is the division of a corporation’s
outstanding shares into a larger number of
shares;
– Example: a 2-for-1 split by a company with 1,000,000
shares outstanding would increase the total shares
outstanding to 2,000,000.
– A stockholder with 100 shares before the split would
have 200 shares after the split.
– The immediate value of the new stock would be half
the value of the old.
– Stock splits make the company’s shares more
affordable, thereby attracting more investors.
Other Stock Concepts…
• Oversubscribed – Stockbrokers begin taking
orders for new stock offerings before the new
stock is issued.
• Sometimes this results in more buyers for an
offering than there are shares.
• The stock becomes oversubscribed and the
price usually goes up when it comes out – a
classic example of supply and demand.
• Brokers refer to the stock as a “ hot issue .”
Other Stock Concepts…
• Buy-Backs – When a company buys back a
portion of its stock, usually because the stock
has fallen below a certain price.
• Shares reacquired by the company revert to
treasury stock, meaning:
– The stock can be sold later for a profit if the price
rises.
– It does not pay a dividend or vote.
• After a buyback, the remainder of issued and
outstanding shares usually increase in value.
People Invest For Growth or
Income
• A growth stock is one that pays low dividends, or no
dividend, but is very likely to increase in value over
time.
• When you buy a growth stock, you hope to make a
profit by later selling for more than you paid.
• An income stock is one that has a strong record of
paying dividends and is likely to continue.
• If you want income, look for stocks with high dividend
yields.
• The yield is the percentage of a stock’s
price that is paid out to the investor each
year.
Let’s Figure Yield
• To calculate a stock’s yield, divide the annual
cash dividend per share by the price of the stock.
– Example: You have stock worth $100 a share and you
get a dividend of $2.50 per share each quarter, or $10
a year.
• 10/100 = .10 or 10% means the
yield (sometimes called “return”)
on your stock is 10%
What the Indexes Indicate
• The Dow Jones Industrial Average
– Developed in the 1800’s by Charles Dow, an editor of The
Wall Street Journal,
• He believed he could track rises and falls in the stock market
by looking at the performance of a handful of carefully selected
stocks.
– There are 30 stocks used to compute the Dow Jones
Average.
• A complex weighted average of those 30 stock prices is
calculated to determine the daily change in the average.
• The result is a clear reflection of the stock’s performance and
the overall market in general.
• Some companies included in the Dow are: General Electric,
McDonald’s Corp., Exxon, Dupont and AT&T.
A New Day is Dawning…
• The market is open to ALL investors. It is
a level playing field because all buyers
and sellers are anonymous.
A hundred years ago, it was
unusual for women to be
involved in the stock market.
In fact, they were not
allowed on the floor. Today,
women play active roles in
the market.
Buy! Buy! Buy!
Sell! Sell! Sell!
Catch you at the open!