UNIT THREE – INVESTING AND THE STOCK MARKET
TABLE OF CONTENTS
Unit Three Plan ............................................................................................................................3
Summary and Description .............................................................................................................................. 3
Lesson Plan Sequencing ................................................................................................................................. 4
Performance Task(s) and Rubrics .................................................................................................................. 5
Lesson Plan 1: Investing Fundamentals .................................................................................... 7
U3LP1 Handouts ......................................................................................................................................15
Risky Business .................................................................................................................................................. 15
Lesson Plan 2: Investment Goals .............................................................................................16
U3LP2 Handouts ......................................................................................................................................22
Investor Time Horizon .................................................................................................................................... 22
Investment Match Up ................................................................................................................................... 25
Personal Assets .............................................................................................................................................. 26
Lesson Plan 3: The Stock Market .............................................................................................27
U3LP3 Handouts ......................................................................................................................................33
When Bubbles Burst ....................................................................................................................................... 33
Lesson Plan 4: Context and Connections ..............................................................................35
U3LP4 Handouts ......................................................................................................................................40
Sectors, Industries, & Companies ................................................................................................................ 40
My Company In Context .............................................................................................................................. 42
Lesson Plan 5: Stock Analysis (1) ...........................................................................................43
U3LP5 Handouts ......................................................................................................................................49
Exploring The Company’s Fundamentals ................................................................................................... 49
Sample Stock Table ...................................................................................................................................... 50
How To Read A Stock Table ........................................................................... Error! Bookmark not defined.
Company Analysis Worksheet ..................................................................................................................... 52
Lesson Plan 6: Stock Analysis (2) ............................................................................................54
U3LP6 Handouts ......................................................................................................................................57
Apple Inc Stock Chart .................................................................................................................................. 57
My Stock Sheet .............................................................................................................................................. 58
U3: Investing and the Stock Market 2015-16
© Copyright Magnetar Youth Investment Academy
1
Unit Three Quiz ..........................................................................................................................59
Unit 3 Quiz – Answer Sheet ......................................................................................................62
U3: Investing and the Stock Market 2015-16
© Copyright Magnetar Youth Investment Academy
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Unit Three Plan
Summary and Description
INVESTING & THE STOCK MARKET
Students will develop a firm understanding of the concept of investing, learn about various investment
vehicles, and learn specifically about the stock market, how it works, and how to analyze and select
stocks.
Big Ideas
Unit 3 Lessons
9
Investment Goals
9
Investing Fundamentals
9
The Stock Market
9
Investment Goals
9
Risk
9
The Stock Market
9
Portfolio Management
9
Context and Connections
9
Stock Analysis (2 lessons)
Jumpstart Competencies & Standards:
Saving and Investing
9
Explain how investing builds wealth and
helps meet financial goals.
9
Evaluate investment alternatives.
9
Describe how to buy and sell investments.
9
Explain how taxes affect the rate of return
on investment.
9
Investigate how agencies that regulate
financial markets protect investors.
Common Core Standard(s)
Integration of Knowledge and Ideas
CCSS.ELA-Literacy.RST.9-10.7 Translate quantitative or
technical information expressed in words in a text into
visual form (e.g., a table or chart) and translate
information expressed visually or mathematically (e.g.,
in an equation) into words.
CCSS.ELA-Literacy.RST.11-12.7 Integrate and evaluate
multiple sources of information presented in diverse
formats and media (e.g., quantitative data, video,
multimedia) in order to address a question or solve a
problem.
CCSS.ELA-Literacy.RST.9-10.9 Compare and contrast
findings presented in a text to those from other sources
(including their own experiments), noting when the
findings support or contradict previous explanations or
accounts.
CCSS.ELA-Literacy.RST.11-12.9 Synthesize information
from a range of sources (e.g., texts, experiments,
simulations) into a coherent understanding of a process,
phenomenon, or concept, resolving conflicting
information when possible.
U3: Investing and the Stock Market 2015-16
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Lesson Plan Sequencing – Unit Three
Investing
Fundamentals
This lesson covers the fundamentals of investing. Students compare and
contrast different investment instruments, including stocks, bonds, and funds.
Students will discuss an actual investment success story and then advise
fictional characters on common investment mistakes as they learn basic
investment concepts.
Investment Goals
Students will learn how investing can support short-, medium-, and long-term
financial goals. Students will explore the use of different investment
instruments and strategies to align with differing objectives and time
horizons.
The Stock Market
This lesson covers the fundamentals of the stock market. Students will
engage in a whole-class market simulation to learn how investment markets
function and factors that drive prices. In this lesson, students will also learn
about the different types of stocks in which they can invest.
Context and
Connections
Students will discuss how industry context and other macro factors impact
their stocks. Students will learn to interpret stock fluctuations and evaluate
economic and business factors after selecting a stock.
Stock Analysis
(2 lessons)
Students will utilize their credit-analysis experience from Unit Two and apply it
to stock evaluation. Students will begin to read and interpret stock prices
and stock charts using online and offline resources.
Note: All Lessons Plans are roughly 90 minutes in duration.
U3: Investing and the Stock Market 2015-16
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Performance Task(s) and Rubric – Unit Three
A rubric can provide a basis for self-evaluation, reflection, and peer review. Performance tasks can be
shared with students at the beginning of each unit. The rubric provides a goal for students to achieve in
the program. Students can decide where they want to fall on the rubric and use it as their guide. This
allows them to take ownership of their learning and decide how far they want to go with the curriculum.
Managing Director - 4
Student can list
three or more
types of
investments,
describe their risk
level, and what
their purpose is in
an investment
portfolio.
9
Student can list
three or more
types of
investments.
9
Student can
describe the risk
level and the
purpose of at least
two types of
investments in an
investment
portfolio.
9
Student can
articulate 3
differences
between saving
and investing.
9
9
Student can list 4
savings vehicles
and 4 investment
vehicles.
9
Student can
prescribe
investment
strategies that
match specific
investment goals
with over 85%
accuracy.
9
Investments
Investment
Goals
9
Investment
DecisionMaking
Portfolio Manager - 3
Student can
identify at least 3
common
investment
mistakes, explain
why the decisions
are mistakes, and
recommend
alternative
financial decisions
in each case.
U3: Investing and the Stock Market 2015-16
Trader - 2
New Trainee - 1
9
Student can
identify two types
of investments.
9
Student can
identify one type
of investment.
9
Student can
describe the risk
level and the
purpose of at least
one type of
investment in an
investment
portfolio.
9
Student cannot
describe its risk
level or its purpose
in an investment
portfolio.
Student can
articulate 2 key
differences
between saving
and investing.
9
9
Student can
articulate the basic
distinction
between saving
and investing.
Student cannot
articulate the
difference
between saving
and investing.
9
Student can list at
least 3 savings
vehicles and 3
investment
vehicles.
9
Student can list at
least 2 savings
vehicles and 2
investment
vehicles.
9
9
Student can
prescribe
investment
strategies that
match specific
investment goals.
9
Student can
prescribe
investment
strategies that
match specific
investment goals.
Student cannot
prescribe
investment
strategies that
match specific
investment goals.
9
Student can
identify 1-2
common
investment
mistakes, explain
why the decisions
are mistakes, and
recommend
alternative
financial decisions.
9
Student can
identify 1-2
common
investment
mistakes.
9
Student cannot
identify any
common
investment
mistakes.
© Copyright Magnetar Youth Investment Academy
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Managing Director - 4
9
Stock Analysis
9
9
Stock Analysis
Portfolio Manager - 3
Trader - 2
Student can list five 9
or more things to
look for when
analyzing a
company for a
potential
investment.
9
Student can
analyze a stock
and articulate 3
investment merits,
2 micro-level risks,
and 2 macro-level
risks related to that
company’s stock.
Student can list 3-4
things to look for
when analyzing a
company for a
potential
investment.
9
Student can list 1-2
things to look for
when analyzing a
company for a
potential
investment.
Student can
analyze a stock
and articulate at
least 2 investment
merits, 1 microlevel risk, and 1
macro-level risk
related to that
company’s stock.
9
Student can
analyze a stock
and articulate at
least 1 investment
merit and 1 risk
related to that
company’s stock.
Student can define 9
and explain 4 or
more terms on a
stock chart.
Student can define 9
and explain 3
terms on a stock
chart.
U3: Investing and the Stock Market 2015-16
New Trainee - 1
9
Student cannot
identify any things
to look for when
analyzing a
company for a
potential
investment.
9
Student cannot
evaluate a stock or
articulate any
investment merits
or risks related to
that company’s
stock.
Student can define 9
and explain at
least 2 terms on a
stock chart.
Student cannot
define and explain
any terms on a
stock chart.
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 1: Investing Fundamentals
Duration: 90 minutes
Lesson Summary
This lesson covers the fundamentals of investing. Students will compare and contrast different investment
instruments, including stocks, bonds, and mutual funds. Students will discuss an actual investment success
story and then advise fictional characters on common investment mistakes as they learn basic
investment concepts.
Lesson Objective(s)
à Compare and contrast saving and investing.
à Describe the relationship between risk and reward in investing.
à Differentiate between stocks, bonds, funds, and cash investments.
à Articulate common investment mistakes.
Lesson Materials
Handouts and Resources:
9
Risky Business
Online Savings Calculator (Bankrate.com)i
Video Clip: Magic Johnson – Game Changers ii
Warm-Up Activity (10 minutes)
1. Show the Magic Johnson Game Changers video clip. The clip from 8:35 through 12:00 documents
Magic’s initial business decisions and early lessons learned about how to manage his own
finances.
2. After showing students the clip, inform students that Johnson went on to leave the game of
basketball, and has since become a very successful businessman with investments in movie
theaters, Starbucks, sports teams, and, most recently, he has opened up a school.
3. Facilitate a discussion with students:
9
What set Magic apart from other athletes who have not achieved this level of success “off the
court?”
9
What did he learn from what happened to his friend, Kareem Abdul-Jabbar?
9
What were some of the key decisions he made that set him up for financial success?
4. Allow students to ask any questions they have, and let them know that regardless of the source of
one’s “earned income,” it is important to also save and invest to build long-term financial stability
and success.
U3LP1: Investing Fundamentals 2015-16
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Learning Activity (80 minutes)
INVESTMENT VEHICLES (20 MINUTES)
1. Inform students that Magic Johnson is one of many investment success stories. It is important,
however, to also understand the stories of those who have not made the right investment
decisions. Today’s lesson will highlight some common investment mistakes, but first, students will
talk about a few of the most common “investment vehicles.”
2. Remind students that they learned about a number of ways to save in Unit One. (E.g. Savings and
Money Market Accounts; Certificates of Deposit; US Savings Bonds; College Savings Plans).
3. Ask students - What are some examples of things you’ve heard of that you could invest in? (Write
students’ responses on the board). Examples may include:
9
Stocks, bonds, mutual funds; index funds
9
Real estate; Commodities; Derivatives; Futures; Options; Annuities
9
Retirement Accounts – IRA; 401K; 403B; College Fund (529)
9
A friends’ business; An initial public offering (IPO)
4. Explain to students that there are many ways to invest money. Today’s class will delve into stocks,
bonds, and mutual funds specifically.
5. Divide the class up into three groups – Bonds, Stocks, and Mutual Funds. Inform students that
each of them will be assigned to one of these three investments, and their group will be charged
with teaching the class about it.
6. Inform students they are to answer the following questions for the class:
9
Group A: What is a stock? Group B: What is a bond? Group C: What is a mutual fund?
9
Each group’s assignment is to provide a definition and some benefits of the investment they
represent, as well as three to five key things the class should know to help them understand
this investment and how it works.
7. Advise students that they should rely on prior knowledge only! As students work in their groups,
walk around the room to answer questions that come up for them.
8. Allow each group to present, one by one, and supplement their presentations with the following
information:
U3LP1: Investing Fundamentals 2015-16
© Copyright Magnetar Youth Investment Academy
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Bonds
9
All bonds are essentially a “loan.” When you purchase a bond, you are providing a “loan” to the issuer of that
bond.
9
There are many different kinds of bonds.
o
US Savings Bonds are issued by the federal government.
o
A Corporate Bond is a bond issued by a company.
o
Municipal Bonds are issued by cities (such as Chicago) or other local governmental entities.
o
Corporate and Municipal Bonds are not insured by the FDIC.
9
When you buy a bond, you are loaning your money to that entity for a predetermined period of time (the due
date is known as the maturity date).
9
The borrower must pay you an interest rate (the coupon) in exchange for the loan.
9
Just like people have FICO scores to determine their riskiness to lenders, corporations and cities also have credit
ratings so potential investors can tell how risky it is to lend to them.
9
The lower the credit rating, the higher the issuer of the bond must pay you.
9
If the company goes bankrupt, there is a chance that bondholders might not get paid back.
Stocks
9
Stockholders are actually owners of a company. Shareholders have the right to vote at shareholders’ meetings.
9
Risk & Return. Stock is the riskiest position you could have in a company. Accordingly, it also offers the potential
for the highest return.
9
Unlike a bond, a stock is not a loan. The Company does not owe you a set amount of money back. But you do
have a right to the future profits (bottom line) of the company (if there are any).
9
A share is a unit of ownership in a publicly-traded company, a claim on the company’s assets and FUTURE
earnings. (Throughout the Unit, the terms “share” and “stock” will be used interchangeably).
9
Shareholders can make money two ways;
o
Some companies pay regular dividends to their shareholders.
o
You can sell the stock for more than you bought it (CAPITAL GAINS).
9
Because shareholders have a claim on the bottom line, this means that all other expenses get paid before
shareholders (owners) get paid – including the Company’s Debt-holders (bondholders).
9
Accordingly, investors place a lot of scrutiny on Company Earnings Releases.
Mutual Funds
9
Mutual Funds are a way to invest in a “collection’ of stocks and/or bonds.
9
You can think of a mutual fund as a company that brings together a group of people and invests
their money in stocks, bonds, and other securities.
9
Each investor owns shares of the fund, which represent a portion of the holdings of the fund.
9
Mutual Funds are what most average investors use as a way to invest in their retirement accounts.
9
Mutual Funds are a way to “diversify” in a lot of different stocks/bonds by purchasing shares of a fund.
This cuts down on the risk related to any one of the stocks or bonds in the fund.
9
A mutual fund is created and managed by a professional investment company. They charge you a
fee for the management of the fund.
U3LP1: Investing Fundamentals 2015-16
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CHECK FOR UNDERSTANDING (5 minutes)
1. Remind students they have learned about three Asset Types (STOCKS, BONDS, and FUNDS). (Write
these three on the board). Have students get into groups of three or four. Ask students to
summarize what they learned about the similarities and difference between the three.
2. Reconvene the group and ask students the following questions:
9
What is the difference between a stock, a bond, and a mutual fund?
9
How do the three vary in terms of risk?
9
How do they vary in terms of return?
Risky business case studies – You be the Advisor
The remainder of the lesson will be structured around three key investment concepts: (1) Purposes of
Saving and Investing; (2) Risk & Return; and (3) Time Horizon & Liquidity.
SAVINGS VERSUS INVESTING (15 MINUTES)
1. Pass out the “Risky Business” handout, and have students get into small groups. Inform students
that they will serve as Investment Advisors to people who made some investment mistakes.
2. Read through the following example of Carl out loud as a class.
Name: Carl
Age: 47
Financial goal
Carl had $5,000 saved up for a $10,000 car he planned to buy in 12 months. He wanted to
double his money quickly.
Investment Made
Got a stock tip from his uncle about a company he just heard about. Not wanting to miss out
on a hot deal, he bought the stock right away.
What went wrong?
Three months after Carl bought the stock, the market tumbled. By the end of 12 months he lost
half of his investment and didn’t have the money he needed for a car.
3. Allow time for the groups to discuss the following questions from the handout:
9
What was his/her investment goal? What was the timeline for his/her goal?
9
What went wrong?
9
What could each person have done differently to avoid the negative investment outcomes?
9
What advice would they give the person?
4. Start a discussion by calling on students/groups to share their feedback for Carl. In the debrief,
share with students the following:
Goal: Double his $5,000 investment to buy a car
Timeline: 12 months
Mistake: He made a high-risk, long-term investment to try
to finance a short-term goal.
Could have been avoided: If he kept his original $5,000 in
savings he would have had it available 12 months later,
plus interest.
5. Write the words SAVING and INVESTING on the board. Emphasize to students that there is a
difference between SAVING and INVESTING. Both are important, but they serve two different
purposes.
U3LP1: Investing Fundamentals 2015-16
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Purpose of Saving v. Investing
1. Ask students to recall the purpose of SAVING. Make sure to emphasize the following points:
9
SECURITY: Savings is intended to preserve money so that it will be there when needed; it
serves as protection against uncertainty and preparation for emergencies. It is a form of
“insurance.”
9
Potential uses include: funding living expenses in case of job loss; funding a major expense in
the near future.
2. Ask students to recall the purpose of INVESTING. Make sure to emphasize the following:
9
GROWTH: Investing money intends to generate profit & wealth, and to grow money over time
(e.g. the purchase of a stock that increases in value over time; then selling it at a higher price)
9
INCOME: Investing can also be used to generate additional “current” income (e.g. the
purchase of a stock that pays dividends)
RISK & RETURN (25 MINUTES)
1. Inform students that another important difference between saving and investing is RISK.
2. Break students up into four teams.
3. Explain to students they are about to play another game of Upside/Downside.
4. Read the following list in order to the students and give them one minute after each item is read
to list all the rewards that could potentially come from making that investment or purchase (The
Upside). Then, give them another minute to come up with a list of all the things that could
potentially go wrong if they make that investment (The Downside).
9
Buying a stock
9
Buying a building
9
Opening a savings account
9
Buying a savings bond
9
Purchasing a CD (Certificate of Deposit)
9
Loaning money to a friend
5. After the teams complete the process, walk through the list and allow students to share their
responses.
6. Note that the savings products typically have minimal to no downside (RISK), but very also limited
upside (RETURN) potential. Conversely, while the investments have higher upside potential, they
also can have unlimited downside risk.
9
Write the words RISK and RETURN on the board.
9
Inform students that, in general, the greater the potential for an investment to increase
substantially in value (RETURN), the greater the RISK it might also drop substantially.
7. Inform students of the following:
9
Savings and Investing differ in terms of potential RETURN (PROFIT).
9
Unlike the banking world, where the FDIC insures your deposits, in the world of stocks and
bonds, there are no guarantees. You could lose all of your investment.
9
Accordingly, it’s important to make informed investment decisions and do your research.
U3LP1: Investing Fundamentals 2015-16
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Investor Protections.
1. Inform students that there are, however, some protections for investors. Highlight the following
points:
9
The investment world is regulated to protect investors from fraud and to help ensure that the
markets operate efficiently.
2. Ask students if they have heard of the SEC.
9
The Securities and Exchange Commission in Washington, D. C. regulates the stock market and
oversees all companies that sell stock to the public (called “public companies”).
9
The SEC enforces the laws the government passes to protect investors from fraud.
9
Strongly emphasize the point: Although the SEC plays an important role, it does not protect
your investment from losing money. For example, if a company is prosecuted and punished
for fraud, it does not necessarily mean its investors will get their money back.
9
In addition, publicly traded companies have a significant number of rules they must follow,
including reporting requirements.
9
Public companies are required to provide to the public their full financial statements, annually,
quarterly (four times a year), and every time there is a major event that may impact
shareholders.
3. Close out the Risk & Return section with having students in their groups review and come up with
advice for Rita (the next profile in their handout).
Name: Rita Age: 28
Financial goal
Investment Made
What went wrong?
Invest in her child’s college fund. Her child goes to college in 10 years.
Purchased some stock in hopes of “growing” the money she will need 10 years. As the
market began to decline, so did her stock. She watched the stock every day, and the value
of the stock began to decline shortly after she purchased it. She could not take it, and she
sold it 3 months after she bought it and took a loss. 6 months later, the company got a new
CEO, and the stock has been increasing steadily ever since.
Rita sold too soon! Long-term investments can be higher risk and change a lot from day to
day. She made an emotional decision to sell in the short-term because the volatility of the
stock made her nervous.
4. After the groups have had an opportunity to discuss, call on a few groups to share their advice for
Rita. In the debrief, share with students the following:
Goal: Invest in money for her child’s college fund
Timeline: 10 years
Mistake: She made a high-risk, long-term investment
and sold the stock in the first year due to a volatile
market. Rita made an emotional sell.
Could have been avoided: She should have held on to
the stock for the long-term because she didn’t need
the money yet and the stock price grew over time.
5. Inform students that, in taking on a risky investment like stocks, one must be able to handle the
fact that the value will likely fluctuate. Rita wanted the kind of upside (RETURN) a stock could
provide, but she couldn’t take the risk.
U3LP1: Investing Fundamentals 2015-16
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TIME HORIZON & LIQUIDITY (15 MINUTES)
1. Inform students that another key difference between saving and investing is the availability of
funds. That is, how quickly you can get access to your cash when you need it. This is called
LIQUIDITY. Write the word “LIQUIDITY” on the board.
2. Have students in their groups, read and advise on the final two profiles: Tim and Janet, and discuss
the questions in the handout:
Name: Tim
Age: 33
Financial goal
Generate Additional Income.
Investment Made
Took some money from his emergency savings fund and invested in real estate.
What went wrong?
Tim was laid off shortly after he made the investment, and no longer had access to his
emergency fund because it was tied up in the real estate investment. In addition, the
property required some repairs that he did not have the cash to make, and he was not
sure how long he would be able to keep up his own living expenses. The housing market
started to slow down and the value of the property he purchased was less then when he
bought it. He had no liquid assets and the house could take many months to sell.
Name: Janet
Age: 31
Financial goal
Save for a down payment on a home she was planning to buy next year.
Investment Made
Janet took money out of savings and bought some stock that had been in the
newspapers for a while.
What went wrong?
The next year when her opportunity came to purchase the home, Janet found that the
value of her shares had actually declined by 35%! If she were to sell her stock, she
would not have enough for the down payment for the house wanted.
3. After the groups have had an opportunity to discuss, call on a few groups to share their advice.
In the debrief, share with students the following:
Tim
Goal: Generate additional Income
Timeline: Today
Mistake: He used emergency savings to make
a high risk, long-term investment. He invested
without first securing his emergency fund.
Could have been avoided: He should have left
his emergency fund in savings so it would be
available when he lost his job unexpectedly.
Goal: Save for a down payment on a home
Timeline: 1 year
Mistake: She made a high-risk, long-term
investment to try to finance a short-term goal.
Could have been avoided: If she kept the
original money in savings she would have had it
available 1 year later, plus interest.
Janet
U3LP1: Investing Fundamentals 2015-16
© Copyright Magnetar Youth Investment Academy
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4. Write the words “LIQUID ASSET” on the board. Inform students that:
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Some savings products are actually referred to as “cash investments” or “cash equivalents”
because they are nearly as easy as cash to access when needed.
9
Savings should always be kept in liquid accounts and investments.
5. Ask students to brainstorm examples of liquid and illiquid assets.
9
LIQUID ASSETS include cash, US Savings bonds, and short-term CD’s.
9
Real Estate is an example of an investment asset that is NOT LIQUID.
6. Inform students that, related to liquidity, another key difference to consider is TIME HORIZON. Note
that:
9
Savings is used to fund short- or near-term needs. (E.g. If you need the money in the next few
years).
9
Because of the risk involved, investing is best done with funds you will not need in the near
future (best for longer-term needs).
Parking Lot (5 minutes)
Students may have submitted financial questions to you via text or email. Take this time to discuss one or
two of the questions submitted. Encourage group discussion.
Closing Bell (Optional)
Using the Closing Bell list provided by Magnetar Academy, you can either use this time to teach one
of the 5-minute Mini-Lessons on the stock-related concept, OR look up the "stock of the day" on
Yahoo or Google Finance with the class and project the page (if possible). Discuss recent news,
performance, and other matters (e.g. industry announcements) related to stock’s performance.
Alternatively, use the Wall Street Journal newspaper and read from it to the class.
http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx
ii http://www.bloomberg.com/news/videos/2015-01-26/magic-johnson-basketball-business
i
U3LP1: Investing Fundamentals 2015-16
© Copyright Magnetar Youth Investment Academy
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U3LP1 Handouts
Risky Business
Investing can be risky business. Sometimes big risks can mean big payoffs. But sometimes they mean big losses. Here
are a few examples of people who took big risks and lost a lot of money. Read through the following examples, and
for each person, answer the following questions:
•
What was his/her investment goal? What was the timeline for his/her goal?
•
What went wrong?
•
What could they have done differently to avoid the negative investment outcome?
•
What advice would they give the person?
Name: Carl Age: 47
Financial goal
Carl had $5,000 saved up for a $10,000 car he planned to buy in 12 months. He wanted to double
his money quickly.
Investment Made
Got a stock tip from his uncle about a company he just heard about. Not wanting to miss out on
a hot deal, he ran the stock right away.
What went wrong?
Three months after Carl bought the stock, the market tumbled. By the end of twelve months he
lost half of his investment and didn’t have the money he needed for a car.
Name: Rita Age: 28
Financial goal
Investment Made
What went wrong?
Invest in her child’s college fund. Her child goes to college in 10 years.
Bought stock in hope of “growing” the money she will need in 10 years. As the market began to
decline, so did her stock. She watched the stock every day, and the value of the stock began to
decline shortly after she purchased it. She could not take it, and she sold it 3 months after she
bought it and took a loss. 6 months later, the company got a new CEO, and the stock has been
increasing steadily ever since.
Rita sold too soon! Long-term investments can be higher risk and change a lot from day to day.
She made an emotional decision to sell in the short-term because the volatility of the stock made
her nervous.
Name: Tim Age: 33
Financial goal
Generate Additional Income.
Investment Made
Took some money from his emergency savings fund and invested in real estate.
What went wrong?
Tim was laid off shortly after he made the investment, and no longer had access to his
emergency fund because it was tied up in the real estate investment. In addition, the property
required some repairs that he did not have the cash to make, and he was not sure how long he
would be able to keep up his own living expenses. The housing market started to slow down and
the value of the property he purchased was less then when he bought it. He had no liquid assets
and the house could take many months to sell.
Name: Janet Age: 31
Financial goal
Save for a down payment on a home she was planning to buy next year.
Investment Made
Janet took money out of savings and bought some stock that had been in the newspapers for a
while.
What went wrong?
The next year when her opportunity came to purchase the home, Janet found that the value of
her shares had actually declined by 35%! If she were to sell her stock, she would not have enough
for the down payment for the house wanted.
U3LP1: Investing Fundamentals 2015-16
© Copyright Magnetar Youth Investment Academy
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 2: Investment Goals
Duration: 90 minutes
Lesson Summary
Students will learn how investing can support short, medium, and long-term financial goals. Students will
explore the use of different investment instruments and strategies to align with differing objectives and
time horizons.
Lesson Objective(s)
à Differentiate between conservative, moderate, and aggressive risk profiles.
à Differentiate between asset preservation; Income, and growth investment strategies.
à Differentiate between short- and long-term investment horizons and corresponding strategies.
à Match saving and investment vehicles to financial goals and risk profiles.
Lesson Materials
Handouts and Resources:
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Investor Time Horizon
9
Portfolio Profiles
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Investment Match Up
9
Personal Assets
Savings Calculator
iii
Bankrate.com
Warm-Up Activity (5 minutes)
1. Ask students the following questions:
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“What is an investment goal? What might be some examples?”
2. Take responses from the class. Guide students to compare the kinds of investment and financial
goals people may have: (e.g. short-term/long-term, etc.)
Learning Activity (85 minutes)
PLANNING FOR RETIREMENT (20 MINUTES)
1. Inform students that they will now consider a case of three people – each in their 20’s and 30’s who have the goal of saving for retirement (they each plan to retire in their 60’s). Each of them
are fantastic at budgeting and saving, but their retirement savings strategies are very different.
2. Ask for three student volunteers to come to the front of the class to play the roles of the following
characters:
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Michael is saving money for his retirement under the mattress. (write on the board:
“MATTRESS”)
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Kenya is socking away any extra money she saves in a savings account, because she wants
to make sure her money stays safe. (write on the board: “SAVINGS ACCOUNT”)
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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Jerrod has his money in a combination of cash, a savings account, and investments. (write on
the board: “CASH + SAVINGS + INVESTMENTS”)
3. In their groups, have students provide the pros and cons to each of these three strategies. (The
three student volunteers can form their own group and discuss).
4. Allow students to provide critique and advice to Michael, Kenya, and Jerrod respectively as it
relates to the retirement strategies they currently have in place. Allow the three students to return
to their seats.
5. Explain to students that, in critiquing these three retirement savings strategies, it’s important to
take into account two key factors: INFLATION and COMPOUNDING.
Inflation
1. Write the word “INFLATION” on the board.
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Ask students if they have heard the word inflation, and what they think it means. Take responses
from the class. Highlight the following points:
-
The word INFLATION relates to the tendency of prices to “inflate” (rise) over time.
-
For example, if you purchased something that cost $20 in 1990, that same item would cost $37
in 2012, due to inflation alone.
-
Recall with students that they may have heard their grandmother compare what it used to
cost for a pack of gum when she was a child to what it costs today.
-
Typically, the interest rate you receive from a Savings account is lower than the rate of
inflation (~3%). That means, if you ONLY saved and did not also invest, your money would be
there when you need it, but over time it would decrease in value due to inflation.
-
Successful investing allows you to not only keep up with inflation, but to also see your money
grow. This is why it is important to both Save and Invest.
2. Inform students that, in considering Michael, Kenya, and Jerrod, NEITHER Michael NOR Kenya
would be able to keep up with inflation with their savings-only strategies. They would actually be
LOSING the value of their money over time.
Compounding
1. Revisit the concept of compounding introduced in Unit 2. Ask students to recall what
COMPOUNDING means.
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When you receive compound interest, the bank pays you interest on the interest you’ve
earned.
2. Inform students that compound growth also applies to investment returns.
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In addition to “reinvesting” the interest earned from a savings account, you can reinvest
investment income earned from stocks and bonds.
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Because the returns from successful investing (~7-10% over time) are significantly higher than
the returns from Savings, the impact of compounding is much greater for one’s investments.
3. Show examples to illustrate the power of compounding when saving versus Investing.
4. Project http://www.bankrate.com for the class. Use the compounding calculator to show the
growth potential with a 1% return (savings account) and an investment that earns 8% on average
if they invest between the ages of 17-67.
5. Inform students that Jarrod’s strategy would allow him to take advantage of the growth that
compounding offers as he builds for retirement.
6. Emphasize the impact of compounding on savings and investing with the following advice:
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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When it comes to investing, time is your greatest advantage as young people.
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It is never too early. As soon as you begin generating income, you can start saving and
investing.
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The importance and power of regular, monthly investing to fully take advantage of
compounding returns cannot be underestimated.
7. Point out that it is important to match one’s financial goals to an appropriate saving or investment
vehicle.
FACTORS THAT INFLUENCE SAVINGS & INVESTMENT STRATEGY (20 MINUTES)
1. Review the different saving and investment vehicles explored thus far - STOCKS, BONDS, and
CASH INVESTMENTS (Risk-Free savings products) – and how they differ in risk, return, liquidity, etc.
2. Ask students to identify the kinds of investment goals that might align with each.
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Stocks – growing money over time to meet long-term financial goals (e.g., retirement);
dividend income.
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Bonds – debt investments primarily for fixed income.
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Cash Investments – protecting cash for short-term financial goals.
3. Ask students to assume the role of an Investment Advisor. In meeting a new customer in need of
advice, ask students to brainstorm what personal questions they may ask to help inform the
development of their client’s savings and investment goals. Consider using an example to
illustrate (e.g. a recent college graduate wants to invest money for retirement).
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Age – How old is the person making the investment?
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Time horizon – When is the money needed? Less than 3 years? Longer term? Over 10 years?
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Risk tolerance – How comfortable is the person with risk/market volatility?
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Dollar amount needed – How much money does s/he have to make the initial investment?
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Ability to make regular contributions – How much will be invested on a regular basis after the
initial investment?
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Specific goals –What goals do you plan to fund in the near-term? (e.g. a house, college,
graduate school, a car, a vacation) In the long-term? (E.g. retirement; starting a business?)
4. Pass out the “Investor Time Horizon” handout. Walk through the handout with students. Review
characteristics of the various Savings & Investment Vehicles. Guide the discussion toward the key
take-aways below, noting the respective time horizons.
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INVEST SHORT-TERM (within the next 1-2 years)
- Low risk savings vehicles for safety and liquidity.
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INVEST LONG-TERM (5+ years)
- Higher risk investment vehicles for growth.
-
INVEST MEDIUM-TERM (2-5 years)
- Combine higher risk investment vehicles for growth with some lower risk vehicles for
safety.
5. Transition the discussion to personal risk tolerance. Ask students to consider their own comfort level
with regard to investing money. Ask students: If you earned $500 working for a month on a
summer job, would you be more inclined to:
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Save it? The risk of losing the money in investing is not worth it to you.
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Invest it? The opportunity to make more money is worth the risk to you.
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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6. Introduce the idea of Risk Profiles. Explain the terms, CONSERVATIVE, AGGRESSIVE, and
MODERATE to students. Write these words on the board.
7. Use the analogy of a rollercoaster to illustrate that some investment markets (e.g., stock, real
estate) can be volatile. For some, the risk is worth the return. For others, the potential for loss is too
unpalatable. This kind of risk tolerance translates into Risk Profiles:
Conservative
Investor
Priority: Capital preservation (safeguarding)
assets they already have.
Outlook: “I want to avoid risk.”
Aggressive
Investor
Priority: Investing for significant growth, even
if it means putting some principal at risk.
Outlook: “It’s worth the risk.”
Moderate Investor
Priority: Middle ground between protecting
assets they already have and building longterm growth.
Outlook: “I want to offset my risks with
some predictable/stable
investments.”
PORTFOLIO PROFILES (15 MINUTES)
1. Hand out the Portfolio Profiles (Oscar and Joy). Ask students to form groups of three and review
the profiles to determine each investor’s profile. Are these conservative, moderate, or aggressive
investors?
Extension Activity: You may also turn this activity into a role-playing exercise by breaking students into
pairs and instructing them to take on the role of investor and advisor.
1. Reconvene the class and ask students to share their assessment of each investor’s profile
(Conservative, Aggressive, Moderate) and explain their rationale.
2. Conclude by asking students to recall/summarize the trade-offs of each investor profile/strategy.
Conservative
Upside: No risk or low risk of losing money
they already have.
Downside: Vulnerable to inflation
Aggressive
Upside: Potential to earn higher returns.
Downside: Potential to lose money (if
investments are not diversified).
Moderate
Upside: Modest returns while protecting
assets.
Downside: Not likely to see huge
returns.
INVESTMENT MATCH UP (20 MINUTES)
1. Pass out the “Investment Match Up” handout and have students remain in their groups.
2. Explain that the handout profiles pairs of investors; each pair has similar financial goals. However,
their personal investment profiles (e.g., age, time horizon) are very different. They need your
advice on an appropriate saving or investment vehicle to meet their needs.
3. Give the groups 10 minutes to complete the handout and recommend an appropriate saving or
investment vehicle to meet each investor’s needs.
4. Reconvene the class and ask students to take turns “introducing” their investors (by reading aloud
from the handout) and then sharing recommended saving or investment vehicle for each
investor. Then guide students to compare and contrast the investor profiles and how that
influenced their recommendations.
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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ROBERTO & SANDRA
PAMELA & SAMUEL
Shared Goal: Invest in child’s college fund
Shared Goal: Invest for retirement
Contrast the recommended investments:
Contrast the recommended investments:
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Pamela has a 25 year time horizon. Samuel has
5 years.
2. Roberto needs the money in 2 years. Sandra
has 17.5 years until her child goes to college.
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Recommendations for Pamela: Stocks
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Recommendations for Samuel: Bonds and Cash
Investments
3. Recommendations for Roberto: Bonds with
Cash
4. Recommendations for Sandra: Stocks
5. Conclude the activity by underscoring the fact that even though investors have the same
financial goals, their profiles may differ significantly, and this ultimately affects how they should
meet their financial goals.
6. Have students refer back to their Setting Goals from Unit One. Have students select one of their
future goals and develop a savings/investment strategy to support that goal. Get in groups of 2-3
and share with one another their plans. Allow a few students to share with the larger group.
GETTING OFF ON THE RIGHT FOOT (10 MINUTES)
1. Transition the discussion to students’ own financial future. Acknowledge that even though they
are still in school and have little/no income, they can take proactive steps to make sure they start
their financial investments off on the right foot.
2. Tell students to consider their current assets. They may not have a lot of cash saved up, but there
are many important assets they do have. Write the following examples on the board and model
the process by sharing some of your personal assets:
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Time
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Talents and skills they are developing that will help them earn future income (e.g.
organizational skills, a trade, ability to solve problems, ability to fix things, etc.)
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Knowledge about investing (and understanding the importance of starting young!)
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Potentially some money (e.g. part-time job, gifts)
3. Emphasize the importance of investing in themselves, (e.g. getting an education; developing their
skills; etc.). Ask students how their personal assets can help them reach their financial goals.
4. Pass out the “Personal Assets” handout. Ask students to record their assets on this sheet.
5. Ask students to form groups of three and share the assets they came up with.
6. Explain to them that sometimes others see assets in us that we may that we may not recognize.
Instruct students to ask their group members for feedback regarding any assets they may have
missed.
7. Ask students to pull out their “My Financial Plan Checklist” handout. They should place this in their
plan.
Savings Challenge
1. In addition to these assets they have the opportunity to start good savings habits now. Pose this
challenge to students:
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Save $10/month. Start now.
2. When they get more income as they get older, they should increase the contributions. What
students will find is that they won’t even miss the money if they put it aside immediately and
pretend like they never had it. Simple and painless…. And powerful.
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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Share an example: Ron is 17. He starts saving $10/month, and for the next 5 years, puts it in a
bank account at 1% interest, he will have $625 when he graduates from college.
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He gets a job after college and reinvests that initial amount in a moderate investment vehicle
that averages 7%.
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At age 22 he increases his contribution from $10/month to $100/month. When he retires at age
65 he will have $365,442.42.
3. Ask students: What else can you do now to make sure you start off on the right foot?
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Open a checking/savings account.
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Make a budget and stick to it. Don’t spend more than your budget allows.
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Avoid debt. Leverage scholarships and more affordable college options. If you get a credit
card in college, pay it off every month and build good credit.
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Develop savings goals.
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Start the life-long habit. Begin saving.
Wrap-up
Wrap up the lesson with a key take-away: building good financial habits like budgeting, building good
credit, and limiting debt over the next five years means students will have more to invest as soon as they
are able. The sooner they start, the further they can go!
Parking Lot (5 minutes)
Students may have submitted financial questions to you via text or email. Take this time to discuss one or
two of the questions submitted. Encourage group discussion.
iii
http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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U3LP2 Handouts
Investor Time Horizon
Time horizon is important factor when planning investment strategies. Some investment vehicles
are more appropriate for different investment time horizons.
Time Horizon
Vehicle Options
More Aggressive <
> More Conservative
Short-Term: 1-2 years
“CASH” INVESTMENTS &
FDIC-INSURED PRODUCTS
Rule of Thumb: Good for
safety and liquidity, not
growth.
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Savings Accounts
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Certificates of Deposit
Investment Goal: Capital
Preservation
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Money Market Accounts
Medium-Term: 3-5 years
Rule of Thumb: Good middle
ground between short-term
and long-term with a mix of
asset protection and growth
to both build and offset
inflation.
Long-Term: 5+ years
Rule of Thumb: The longer
your time horizon, the more
risk you can take because
you have time to ride out
short-term losses.
Benefits & Trade-offs
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(+) Money is safe and easy to
access.
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(+) If you plan to use the
money soon, inflation won’t
be a factor.
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(-) Low rates of return
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(-) May not outpace inflation
in the long run
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Mix of high-quality fixedincome investments (e.g. a
high-yielding CD)
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Requires closer monitoring
stock investments to avoid
losses.
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Modest growth investments
– e.g. a diversified largecompany stock fund.
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High-quality & incomegenerating bonds
As your time draws nearer,
shift to conservative shortterm options (sell stocks and
reinvest into more stable,
income producing
investments).
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Growth investments – like
stocks, stock funds.
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(+) Greatest potential upside
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(-) Greater risk
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(-) Highest volatility
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Higher-yielding bonds
Investment Goal: Capital
Growth (Appreciation)
U3LP2: Investment Goals 2015-16
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THE SECRET TO INVESTING - START YOUNG!!
As Social Security and pensions become more uncertain, it is all
the more important to build your own retirement security. The
earlier you start, the more you can build.
TIPS
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Make contributions to your retirement savings account early in your career.
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Start with a certain amount per year. You can become a millionaire by retirement with
$70/month.
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It is essential that you begin investing young. If you don’t, you’ll be losing money and miss
out on the power of compounding returns. Time is the most important thing you have in your
favor.
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Each year you have money and are not investing, you’re losing out to inflation. Another way
to think about it: if you are not investing, the value of your money is actually going DOWN
each year!
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Remember to ensure your Emergency Fund is in place!
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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Portfolio Profiles
Joy – Age 28
Current Investments
Percentage of Overall Investment
Cash Investments & Savings Vehicles
10%
Bonds
10%
Stocks
80%
Is Joy’s portfolio: Conservative?
Moderate?
Aggressive? (Select one)
What might be some of her investment goals?
Oscar – Age 57
Current Investments
Percentage of Overall Investment
Cash Investments & Savings Vehicles
40%
Bonds
45%
Stocks
15%
Is Oscar’s portfolio: Conservative?
Moderate?
Aggressive? (Select one)
What might be some of his investment goals?
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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Investment Match Up
Recommend a savings and investment vehicle that is appropriate for each person’s financial
goals given their profiles.
Name
PAMELA – Age 25
SAMUEL – Age 58
Financial goal
Invest for retirement
Invest for retirement
Time Horizon
25 years
5 years
Risk Tolerance
Aggressive
Conservative / Low Risk
Priority
Growth
Income; Capital Preservation
Name
ROBERTO – Age 52
Has a 16 year old child.
SANDRA – Age 24
Has a 6-month old child.
Financial goal
Save for child’s college fund
Save for child’s college fund
Time Horizon
2 years
17.5 years
Risk Tolerance
Moderate
Aggressive
Priority
Preservation
Growth
Recommend a
savings or
investment vehicle
Recommend a
savings or
investment vehicle
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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Personal Assets
List your personal assets below. Once you have finished, pass your paper to a member of your group to
add any additional assets they think you have.
1. ____________________________________________________________________________
2. ____________________________________________________________________________
3. ____________________________________________________________________________
4. ____________________________________________________________________________
5. ____________________________________________________________________________
6. ____________________________________________________________________________
7. ____________________________________________________________________________
8. ____________________________________________________________________________
U3LP2: Investment Goals 2015-16
© Copyright Magnetar Youth Investment Academy
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 3: The Stock Market
Duration: 90 minutes
Lesson Summary
This lesson covers the fundamentals of the stock market. Students will engage in a whole-class
market simulation to learn how investment markets function and factors that drive prices. In this
lesson, students will also learn about different kinds of stocks in which they can invest.
Lesson Objective(s)
à Explain how investment markets function.
à Explain how the stock market works and what drives prices.
à Differentiate between the stock exchanges and indices.
à Differentiate between different kinds of stocks.
Lesson Materials
Handouts and Resources:
9
“When Bubbles Burst “
Warm-Up Activity (10 minutes)
1. Ask students the following questions:
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What do you know about the stock market?
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How does the stock market work?
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What do you want to understand about the stock market?
2. Take responses from the class.
Learning Activity (80 minutes)
SUPPLY & DEMAND IN ACTION – A MARKET SIMULATION (20 MINUTES)
1. Explain to students that markets are where things are purchased and sold, and where prices get
established. Inform them that the class is going to form a market. Divide the class into three
groups (or the class can participate as one group):
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Group I will be The Company; Group II will be The Customers; Group III will be The Investors
2. Explain to students that how much a product is worth is determined by what people are willing to
pay for it.
3. Draw a picture of a jacket on the board. Tell students that Group I is starting a sports apparel
company. Guide the class through the following scenario:
U3LP3: Context and Connections 2015-16
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SET THE PRICE
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Ask Group I (the Company) how much they will charge for the jackets and where they will sell them (e.g.
online or select a specific retailer) Allow them time to discuss if needed.
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Ask Group II (the Customers) - How much they would be willing to pay for Group I’s jackets? (Their answers
do not have to be the same).
ATTRACT INVESTORS
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Inform the class that the company requires start-up capital. The Company has pulled together a group of
private investors and is offering this exclusive group an opportunity to get in on the ground floor before
other investors find out about it.
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Ask Group III (the Investors) how many of them would be willing to invest and become shareholders in the
new company (by a show of hands).
COMPANY NEWS
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Ask Group I - (the Company) if they want to change the price.
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Ask Group II – (the Customers) how many of them would be willing to purchase the jackets, and for what
price, if it has changed at all.
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Allow Group III – (the Investors) to reconsider. How many of them would like to invest in the new company,
given this new information? Are there any new investors?
CHANGE IN PERCEIVED VALUE?
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Ask students - Did the value of the jacket change? If so why?
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Ask Customers and Investors to explain any changes in their interest or perceived value. Ask the Company
how it arrived at its new price.
OVERWHELMING DEMAND
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Inform the class that the word is out, and everyone wants the jackets! There are more orders than the
Company can handle. New investors are actually contacting the company to see if they would like to
meet.
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Allow the Company to reconsider their price. How much do they want to charge per jacket now?
COMPANY NEWS
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Inform students that a news story has just been released that the deal is likely falling apart. It is rumored that
artists and athletes are backing out of the endorsement agreements with the Company. Another apparel
company has been courting some of them and stealing them away! Ask the class how, if at all, they think
this might affect the stock price of the Company.
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Customer Complaints – Suddenly customers are complaining. Some want their money back. Sales have
dropped dramatically and the Company has more jackets than it can sell. Some customers have begun a
negative Internet campaign about the jackets.
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Investors are concerned shares have declined. Why? What can the investor do about it?
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Ask the Company if it wants to reconsider its price again. What will it do with all of its inventory?
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4. Take a moment to debrief the concepts illustrated in the mini simulation. Emphasize the concepts
of SUPPLY AND DEMAND and their relationship to price activity and market interest.
5. Allow students to share any observations they have about the simulation that just took place.
Have each group talk about the decisions that they made and the choices facing the company
throughout the simulation.
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Write on the Board: “VALUE IS DETERMINED BY THE MARKET.”
- Ask students what they think this statement means.
- Ask students what factors impacted the price of the product as well as the Investor
interest in the company.
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Emphasize the following points:
- Markets are made up of buyers and sellers. Today we had two markets – the customer
market for the product (jackets) and the investor market for a company. Customers
want to know if the product is valuable. Investors want to know if the company is
valuable.
- There is a relationship between demand and pricing. When lots of people wanted to
buy the jackets, there was a high demand. As demand increases, you can charge
more.
- When there was more supply than demand, the price drops. (If no one wants it, it’s not
worth anything in the market)
- In sum, prices are determined by SUPPLY AND DEMAND. Demand (and accordingly,
pricing) is driven by Investors’ and customers’ sentiments, attitudes, expectations, and
sometimes rumors and fears about whether the product has value (for customers) or if
the company will be profitable (for Investors).
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Different kinds of markets :
- There are other markets as well – real estate market, bond market, tech market, and
stock market. The dynamics that drive prices are similar across these various investment
markets, though the stock market is the most volatile.
THE STOCK MARKET (15 MINUTES)
1. Transition the discussion to the STOCK MARKET. Ask students to recall the definition of a stock. (A
stock is a unit of ownership in a publicly-traded company).
2. Ask students what they think a STOCK MARKET is. (The stock market is a broad term to describe
where stocks are bought and sold).
3. Review the following with students:
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When a company issues stock, the buyer gets a “share” of ownership in the company. In
exchange, the company gets money it needs to grow.
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Investors “own” a share of a company’s future Earnings (also referred to as Profit, the Bottom
Line, or Net Income).
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If a company is profitable, its shareholders benefit.
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If a company is not profitable, its shareholders lose.
4. Briefly discuss the difference between a PUBLIC vs. PRIVATE COMPANY. Inform students:
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Not every company has stock available to purchase in the stock market. (E.g. you cannot
purchase stock in the corner bodega; the stock in our apparel company was not available in
the public markets.)
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When a company is part of a stock exchange it is a PUBLIC COMPANY. That is, shares in the
company are bought, sold, and owned by members of the public (i.e., investors).
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A PRIVATE COMPANY does not participate in a stock exchange. Members of the general
public cannot purchase stock in private companies.
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There are significant requirements for becoming and remaining a public company. You may
have heard the term “IPO”. This stands for INITIAL PUBLIC OFFERING and refers to the process of
“going public”.
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A company goes public because its management believes the company can raise more
money by allowing the general public to become investors. The company believes that there
is a “public market” of investors that it wants access to.
5. Continue with an explanation of EXCHANGES. Emphasize the following points:
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Exchanges constitute the actual “markets” where companies’ shares are bought and sold.
9
There are many exchanges, and each has its own listing requirements and fees for companies
whose stock is traded on them. Companies can list their stock on more than one exchange if
they choose (much like we could have chosen to sell our jackets through more than one
retailer.)
9
The majority of publicly traded companies are listed on the New York Stock Exchange (NYSE)
or the NASDAQ.
9
The New York Stock Exchange is located in New York City, and the companies traded here
are typically more established, stable, mature companies. This is the largest stock market
where people buy and sell stock in person, by trading on the floor of the exchange.
9
The NASDAQ exchange is typically made up of younger companies with prospects for higher
growth (many internet and tech companies). It is the largest electronic stock market; stocks
are traded over the computer.
6. Explain to students that companies that trade on stock exchanges are identified by their stock
symbol (or ticker symbol). Think of these as “nicknames” for the company. Write some of the
following examples on the board.
9
SBUX - Starbucks
9
HOG – Harley Davidson
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GOOG – Google
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AAPL – Apple Inc.
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MSFT - Microsoft
7. Ask the class to name the apparel company (from the mini market simulation earlier in the lesson)
and then come up with a stock symbol for it.
TYPES OF STOCKS “TABOO” (10 MINUTES)
1. Break students out into three teams
2. Give each group a piece of paper with one of the following terms on it: Growth, Income, and
Large-Cap/Mid-Cap/Small-Cap (You can choose one of these three). Advise them not to let the
other teams know what their word is.
3. Explain to the students that they are about to play a game of “Taboo”. Each team needs to give
the other team clues as to what their word is without using the ACTUAL WORD. They may also use
gestures.
4. Once one of the other teams has correctly guessed the word; move on to the next team.
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5. When all teams have finished and the words have been correctly guessed, explain that the stock
market is made up of thousands of public companies. There are a few types of stocks to consider
when investing. Explain the following:
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Growth – These are fast growing companies. They usually do not pay a dividend because the
Company is focused on reinvesting all its money into growing the business. Many technology
stocks are growth stocks. The market expects the earnings of these stocks to grow faster than
the overall market.
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Income – These stocks pay back dividends to shareholders on a regular basis. They are
companies that are not as focused on rapid growth, so they can pay out profits with investors.
These stocks tend to be less volatile than growth stocks. Common industries known for having
income stocks include: energy, utilities, real estate, and financial services.
9
Large Cap / Mid-Cap / Small-Cap – These categories relate to the size of the company.
“Cap” stands for MARKET CAPITALIZATION, which is another way of saying how much it’s
worth. Large-Cap companies are worth more than Mid-Cap which are worth more than
Small-Cap.
- Large Cap companies include some of the world’s largest companies - Wal-Mart,
Microsoft, and GE – companies worth $10B or more.
- Mid-Caps range from $2B-$10B.
- Small Cap companies range in market cap from $300MM-$2B.
INDICES – THE DOW AND THE S&P 500 (5 MINUTES)
1. There are many INDICES that have been created to cluster stocks together that have common
characteristics. Two of the most popular Indices are the S&P 500 and the Dow Jones Industrial.
2. Write the words “STOCK INDEX” on the board.
3. Explain that a group of stocks that have something in common is called an “Index”. There are
many Indices – representing different industries (for example, a real estate Index may be
comprised of a sub-set group (or a representative “sampling”) of stocks from the Real Estate
industry. If you wanted to know how real estate stocks were doing, instead of manually looking
into every real estate stock traded on the market, you could look at the Index as representative of
how the larger sector is doing.
4. There are two indices that are commonly referenced:
9
DOW Jones Industrial (sometimes referred to as “the Dow”) – This is a group of 30 widely held
stocks that are listed on the NYSE. They are mostly industrial companies. The index is computed
using a price weighted index system (add up all the prices then divide by the number of
stocks in the index).
9
S&P 500 – This is a group of 500 stocks that are widely held and traded on the NYSE or the
NASDAQ. It is mostly made up of US-based companies. The S&P 500 is commonly quoted as an
indicator of the economy and the market as a whole.
5. Check for understanding by asking students to differentiate between an exchange and an index,
and to identify and describe examples of each.
6. Ask students it they recall what a MUTUAL FUND is and take responses. Inform students that
investors can also invest in an INDEX FUND. An Index Fund is a type of Mutual Fund that only
invests in stocks within a certain index. For example, investors can buy shares in an S&P Index Fund
– that performs about the same as the overall market.
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WHAT DRIVES STOCK PRICES? (30 MINUTES)
1. Ask students to recall the earlier mini market simulation. Ask students to predict what factors drive
stock prices. Explain that:
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Supply and Demand for the company’s stock among investors determine trading prices.
Demand is driven by many factors including:
9
Expected Earnings – Investors pay close attention to a company’s earnings in part because
shareholders get paid from bottom-line earnings (Net Income).
9
Market Expectations – Value is driven by what the market expects will happen and what the
market thinks the company is worth (and long-term earnings potential). Sometimes it is not as
much about earnings, but more about overall potential to create value in the future
(particularly for newer companies or industries).
9
Attitudes and Emotions – In addition to a company’s performance, fear, speculation, rumors,
and emotions can also drive the markets.
Volatility
1. Inform students that stock prices can increase or decrease at any time based on decisions of
individuals, companies, and national or global events.
2. Pass out the “When Bubbles Burst” handout. Divide the class into two groups. Assign one group to
the dot-com bubble and the other group to the housing bubble. Ask each to take 10 minutes to
read their respective example of inflated market expectations and answer the following
questions. Allow students to discuss amongst themselves.
9
What role did attitude and emotion play in the creation of the market bubble?
9
Describe an example of inflated market expectations before the bubble burst. How did that
change after the bubble burst?
9
Do you think a similar bubble could occur again in this market? Why or why not?
3. Reconvene the class and ask each group to take turns sharing their analysis of the market
expectations for the dot-com and housing market bubbles. Then guide the students to compare
and contrast the two bubbles.
Wrap-up
Have students’ pair-share two new things they learned today about the stock market and one remaining
question they have. Afterward, allow students to share with the class.
Parking Lot (5 minutes)
Students may have submitted financial questions to you via text or email. Take this time to discuss one or
two of the questions submitted. Encourage group discussion.
Closing Bell (Optional)
Using the Closing Bell list provided by Magnetar Academy, you can either use this time to teach one of
the 5-minute Mini-Lessons on the stock-related concept, OR look up the "stock of the day" on Yahoo or
Google Finance with the class and project the page (if possible). Discuss recent news, performance, and
other matters (e.g. industry announcements) related to stock’s performance. Alternatively, use the Wall
Street Journal newspaper and read from it to the class.
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U3LP3 Handouts
When Bubbles Burst
Economic bubbles occur when assets are traded with inflated values and then fall dramatically.
Typically this occurs when so many people decide to invest that the prices skyrocket past the
point of the true value of the assets they are purchasing. When the market peaks, the bubble
bursts and suddenly the prices fall dramatically. Below are two examples of economic bubbles.
The Dot-Com Bubble (1995-2000)
In the mid-to-late 1990s, Internet stocks soared during the “dot-com boom”. The Internet was
still a relatively new phenomenon. Entrepreneurs created tech start-up companies for every
kind of business imaginable, and investors were readily available. The Internet was changing
the world, and everyone wanted to “get in early” on this new sector. Many of these companies
were not making any profits and were not sure how they would make profits in the future. Yet,
there was a significant amount of investment being poured into these businesses. The market
was confident that profitable business models for Internet companies would have to materialize
at some point. Tech companies went public at astonishing rates and stock prices climbed ever
higher. Individual investors couldn’t wait to get in on the deal.
The NASDAQ peaked at 5132.52 in March 2000, and the bubble collapsed throughout 2000 and
2001. Stock prices fell dramatically, and many tech start-ups went out of business. Investors who
bought stock in tech companies at the height of the market lost significant amounts of money.
The Real Estate Bubble (2005-2007)
During the early 2000s, the US housing market was red hot. Housing prices grew at very high
rates. Loans were easy to obtain, so new investors and new homeowners jumped into the
market. Many people bought houses and then sold them immediately for huge profits (called
“flipping”). Many people purchased homes that were more expensive than they could afford.
Mortgages (home loans) often offered interest rates that were very low initially and increased
significantly over time. That meant the payments homeowners made became more and more
expensive, to the point where people could no longer afford to make payments. As a result,
many people lost their homes to foreclosure. Housing prices dropped so significantly and so
quickly that people’s homes were worth less than they originally paid for them. The downturn
affected home valuations as well as the nation’s mortgage markets, banks, and large
institutional investors. When the bubble burst in 2008, it nearly caused a collapse of Wall Street.
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What do you think?
What role did attitude and emotion play in the creation of the market bubble?
Provide an example of inflated market expectations before the bubble burst; how did that
change after the bubble burst?
Do you think a similar bubble could occur again in this market? Why or why not?
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 4: Context and Connections
Duration: 90 minutes
Lesson Summary
Students will discuss how industry context and other macro factors impact their stocks. Students
will learn to interpret stock fluctuations and evaluate economic and business factors after
selecting a stock.
Lesson Objective(s)
à Analyze how economic and business factors affect the market value of a stock.
Lesson Materials
Google Finance
Handouts and Resources:
9
Sectors, Industries, & Companies
9
My Company in Context
i
Yahoo Financeii
Warm-Up Activity (5 minutes)
1. Ask students the following: How does what’s going on in the news (or in the world) affect the
companies and respective stock prices in your portfolios?
2. Remind students that it’s not only important to do research to inform their investment decisions,
but it’s also important to continue to follow the news after they have invested.
3. Inform students that staying in touch with the news of the day can make one a more informed
consumer, investor, and individual. Informed stock investors watch the news.
Learning Activity (80 minutes)
MARKET CONTEXT AND CONNECTIONS (15 MINUTES)
1. Ask students to recall what factors impact stock price:
2. Supply and demand drive stock price.
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Many factors influence how the market values a stock, and there are a myriad of factors that
can cause the stock market to move significantly.
9
Economic data, political events, market sentiments, news events, earnings announcements,
the company’s fundamentals, and anything that the market believes may impact the
company’s future earnings.
3. Inform students they can think about how events impact their companies and stocks on three
levels: at the Company Level, at the Industry Level, and at the Macro level.
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Events Impacting Companies & Their Stock
Company Level
Industry Level
Macro Level*
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New product release
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Regulation changes
9
Interest rates rise/fall
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Change in management
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New Competitors enter
market
9
Unemployment
9
Global recession
9
Raw material price changes
9
Currency Changes
9
Technological changes
9
Political developments
9
Current Events
Explain the term “macro” in this context as large-scale (national, global) events.
4. Further illustrate with the following examples of specific Company-level factors:
9
Netflix, Inc. (NASDAQ: NFLX) Shares peaked at about $300 in the summer of 2011 and fell to
around $70 by the end of that year.
- The CEO, Reed Hastings, changed the Company’s pricing structure and split the firm’s
online side of the business from the physical delivery services.
- The market did not respond favorably to these decisions.
9
Sears Holdings Corporation (NASDAQ: SHLD) Sears ended 2010 trading above $70/share.
Shares have been cut in more than half since then.
- The stock had already been in decline for several years. Even as the retail sector
gained, Sears did not.
- Some market followers criticize the hiring of CEO Lou D’Ambrosio, who had no prior
experience in the retail sector.
5. Shift to illustrate the following examples of how Industry-level and Macro-level events can impact
stocks overnight and/or over time.
9
September 11th. On 9/17/01, the Dow fell by over 7% - the largest one-day drop in history. It
was driven by the 9/11 terrorist attacks on the US. Investors did not know what the future held,
or if more might follow. Accordingly, many people sold and got out of the US stock market.
Prices fell significantly as a result.
9
Lehman Brothers Bankruptcy. In 2008, Lehman Brothers filed for bankruptcy. When it filed, the
company had over $600 billion in debt, making it the largest bankruptcy filing in history.
Lehman was the fourth-largest investment bank and had 25,000 employees across the world.
When the company collapsed, markets fell across the entire world as investors sold their shares
out of fear of what might happen next in the financial markets.
6. Ask students if they can think of other current events – global, local, or national, that impact their
stock and/or the company. Ask them to explain how.
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7. Inform students of the following:
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There is a relationship between trading volume and company, industry & macro news.
9
Some news leads to a short-term market response, while other news is indicative of a longerterm trend that may impact the company’s fundamentals permanently.
9
In general, the markets don’t like uncertainty, and investors are always trying to predict the
future.
9
When information becomes available about what the future might look like, the market
typically responds.
CYCLICAL VS. DEFENSIVE STOCKS (15 MINUTES) (OPTIONAL)
1. Group students into teams of 2-3 and have them work together to create a list of five products or
services they would no longer purchase if their household income was drastically reduced. Have
them generate a separate list of five products they would continue to buy.
2. After five minutes reconvene the class to debrief on their lists.
3. Lead students in a brief discussion to compare and contrast the lists and tie the lists back to the
concepts of CYCLICAL and DEFENSIVE STOCKS:
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Cyclical Stocks – The prices of cyclical stocks tend to move in the same direction as the overall
economy. They increase in good times and decrease in recessionary times. When times get
tough, consumers tend to pull back on their spending with these companies. When times are
good, consumers spend more with these firms.
- Examples include companies in industries like automotive, entertainment, airline, travel,
fashion, and furniture.
- People spend money on these sorts of things when times are good and they have
money to spare.
9
Defensive Stocks – The price of defensive stocks tend not to change dramatically compared
to the business cycle. They are steady and reliable even in economic downturns. They are
typically companies who sell goods and services that are basic necessities that people
cannot go without.
- Examples include companies that sell the kinds of products you need to live your life
every day: utilities, food & beverage, hygiene products, etc. People spend money on
these sorts of things even when times are hard and they don’t have money to spare.
- These stocks are less sensitive to economic cycles.
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REVISITING BETA (10 minutes)
1. Revisit the concept of BETA. Remind students that one way to evaluate a stock price is to look at
its volatility compared to the overall market. That is, is the stock more or less volatile than other
stocks?
2. Beta is a measure traders use to evaluate a stock’s volatility.
3. Review how to interpret beta statistics:
If Beta =1
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Company is perfectly
aligned with the market. It is
as volatile as the market.
If Beta <1
9
If Beta > 1
Company is less volatile than
the market (less risky).
9
Company is more volatile
than the market (more risky).
4. Ask students to predict how beta aligns with risk profiles.
Conservative & Moderate
9
Aggressive
Company is perfectly aligned with the market.
It is as volatile as the market.
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Company is more volatile than the market
(more risky).
5. Provide an example of how a stock with a high beta will react compared to the overall market.
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A stock with a beta of 1.7 will rise 17% if the overall market rises 10%.
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It will fall 17% if the overall market falls by 10%.
6. Reinforce that it is essential to look at stocks in the larger context
SECTORS, INDUSTRIES, & COMPANIES (20 MINUTES)
1. Explain the importance of the SECTOR and INDUSTRY on the stock price.
2. Inform students that, sometimes, if an industry receives bad press, it may affect all the stocks in
that industry.
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That is, even if an individual company is performing well and maintaining strong fundamentals,
if the market is pessimistic (“BEARISH”) about the industry, that company’s stock may take a
hit. Conversely, if the market is optimistic (“BULLISH”) about a certain industry, an individual
company within that industry may benefit, even if their performance does not merit the boost
in stock price.
3. Pass out the “Sectors, Industries, and Companies” handout. Have students’ pair-share to read
through the handout.
4. Ask students:
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Which sectors are you familiar with?
9
Which are new to you?
9
Which sectors, industries, or companies jump out at you?
9
Which do you feel most comfortable with?
9
Which ones might you want to follow?
5. Direct students to Yahoo or Google Finance or project it for the class. Have students review the
top stories. Ask students to identify which stories are company-specific, industry-specific, and
macro. Ask them to discuss the potential effect of some of the stories on specific stocks, industries,
or the market as a whole.
6. Wrap-up this section by informing students that, as they look to come up to speed on and stay
abreast of their potential investments, they should try to get an overall sense for their company’s
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industry and sector, the trends currently impacting that sector, and potential sector- or industrylevel risks.
YOUR COMPANY’S CONTEXT AND CONNECTIONS (20 MINUTES)
1. Pass out the “My Company in Context” handout.
2. Build on the ideas introduced earlier in the lesson about context. Reiterate that as an investor it is
important to understand the larger context of the companies in one’s portfolio.
3. Tell students that they will have time to research one or two of the companies from their portfolio
(Alternatively, students can choose other stocks from Google Finance if they prefer). Advise
students to look at stocks that are listed on the NASDAQ or NYSE markets.
4. Allow students to explore sector and industry news regarding their companies’ sectors and
industries through Yahoo or Google Finance, and the internet.
5. After 20 minutes, reconvene the class and ask students to take turns sharing their research by
giving a brief summary of the company’s industry and macro context. Lead students to compare
and contrast their company findings.
6. Ask students to reflect on what insights they learned about their companies by researching the
broader contexts in which they operate. If they were to create their final portfolio today, would
they have chosen these companies? Why or why not?
Parking Lot (5 minutes)
Allow five minutes for students to ask or follow-up on questions related to the days’ topic or about money
management in general.
Closing Bell (Optional)
Using the Closing Bell list provided by Magnetar Academy, you can either use this time to teach one of
the 5-minute Mini-Lessons on the stock-related concept, OR look up the "stock of the day" on Yahoo or
Google Finance with the class and project the page (if possible). Discuss recent news, performance, and
other matters (e.g. industry announcements) related to stock’s performance. Alternatively, use the Wall
Street Journal newspaper and read from it to the class.
i
ii
http://www.google.com/finance
http://finance.yahoo.com/
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U3LP4 Handouts
Sectors, Industries, & Companies
Conglomerates
Consumer Goods
Industrial
Goods
Basic
Materials
SECTOR
EXAMPLES OF INDUSTRIES
9
Agricultural
Chemicals
9
Aluminum
9
Chemicals
9
Coal
9
Aerospace &
Defense
9
Construction
9
Agriculture
9
Apparel &
Accessories
9
Appliances
9
COMPANIES INCLUDE:
9
Gold
9
Monsanto
9
BASF
9
Copper
9
Haliburton
9
BP
9
Oil
9
Exxon Mobil
9
Chevron
9
Gas
9
Machinery
9
KB Home
9
Boeing
9
Mobile Homes &
RVs
9
Lockheed Martin
9
Deere
9
Caterpillar
9
3M
9
Goodrich
9
Furniture & Fixtures
9
Mattel
9
Coach
9
Jewelry &
Silverware
9
K-Swiss
9
Ralph Lauren
9
Goodyear Tire
9
Toyota
Tools
9
Photography
9
Nike
9
Sony
9
Audio & Video
Equipment
9
Recreational
Products
9
Ford
9
Kraft Foods
9
Automotive
9
9
Coca Cola
9
General Mills
9
Footwear
Textiles - Non
Apparel
9
Procter & Gamble
9
Beverages
(Alcoholic)
9
Tires
9
PepsiCo
9
Food Processing
9
Office Supplies
9
Personal &
Household Products
9
Tobacco
9
Mitsubishi
Corporation
9
Sungame Corporation
9
Vesuvius
9
Beverages (NonAlcoholic)
9
Crops
9
Fish/Livestock
9
Conglomerates
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Financial
Healthcare
9
Banks
9
9
Real Estate
Development
Insurance
Companies
9
Brokerage firms
Services
9
Prudential
9
Wells Fargo
9
Goldman Sachs
9
Fifth Third
9
Morgan Stanley
9
Humana
9
Cigna
9
WellPoint
9
CBS
9
CVS Caremark
9
Walgreen
9
DreamWorks
Animation SKG
Credit Services
9
Biotechnology
9
Medical Research
9
9
Drug
Manufacturers
9
Long-Term Care
Facilities
Johnson &
Johnson
9
Merck
9
Medical Equipment 9
Hospitals
9
Pfizer
9
Business Services
9
Resorts & Casinos
9
9
Grocery Stores
9
Airlines
Intercontinental
Hotels
9
Wal-Mart
9
Target
9
Dollar General
9
Dollar Tree
9
AT&T Verizon
9
Whole Foods
9
eBay
9
McDonalds
9
Delta Airlines
9
Domino’s Pizza
9
Southwest Air
9
United Parcel
Service (UPS)
9
Union Pacific
9
FedEx
9
Technology
Bank of America
9
9
Utilities
9
Restaurants
Publishing
9
Entertainment
9
Apparel Stores
9
Advertising
Agencies
9
Air Courier
9
Airline
9
Railroads
9
Wireless
Communications
9
Software
9
Internet
Information
Providers
9
Personal
Computers
9
Telecom Services
9
9
9
9
9
Railroads
Security &
Protection Services
Broadcasting –
Radio and
Television
9
Movie Theaters
9
Trucking
9
Water
Transportation
9
Semiconductor
9
Sprint
9
IBM
9
Long Distance
Carriers
9
Dell
9
Nintendo
9
Apple
9
Motorola
9
Multimedia &
Graphics Software
9
Hewlett-Packard
9
Cisco
9
Diversified
Electronics
Electric Utilities
9
Water Utilities
9
Exelon
9
Gas Utilities
9
Diversified Utilities
9
International
Power
American Water
Works
9
United Utilities Group
*Note that different investment websites and companies may categorize industries and sectors
differently. The information above was taken from Yahoo Finance.
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My Company In Context
Complete the worksheet as you research the companies in your stock portfolio. Look for
answers to the following questions:
9
What industry is the company in?
9
What are current economic trends in that industry?
9
What macro trends currently impact this company?
9
What unexpected events could impact the company in a positive or negative way?
Company Name and
Ticker Symbol
Sector
Industry
Industry Leader(s) & Key
Competitors
Industry Trends and
Outlook
Current Challenges and
Risks
NEWS AND NOTES
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 5: Stock Analysis (1)
Duration: 95 minutes
Lesson Summary
Students will build on their credit-analysis experience in Unit Two and apply this to stock evaluation.
Students will begin to read and interpret stock prices and stock charts using online and offline resources.
Lesson Objective(s)
à Evaluate a company’s fundamentals.
à Interpret a stock table and explain the terms therein.
à Utilize online stock analysis tools.
Lesson Materials
Google Finance
Handouts and Resources:
9
9
9
9
9
i
Exploring the Company’s Fundamentals
Sample Stock Table
How to Read a Stock Table
Magnetar Academy Stock Universe*
Company Analysis Worksheet
*The Magnetar Academy Stock Universe is used in multiple Lesson Plans and is located in the Curriculum Binder as a separate insert and
can also be found on the Instructor Portal under “Other Program Documents”
Warm-Up Activity (5 minutes)
1. Ask students to consider what they would look for in a company before choosing to invest in its
stock. What would they want to know? Guide a group brainstorming activity to uncover some of
the following, and write them on the board for reference.
9
High-quality products and services.
9
A strong potential customer market.
9
Company is in an industry that is performing well with a strong future outlook.
9
Company has performed well over time (i.e., strong track record).
9
Projected growth in earnings and/or strong record of paying dividends.
2. Explain to students there are no guarantees, but there is a wealth of information available for
investors to research companies and their respective stocks to make informed investment
decisions.
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Learning Activity (90 minutes)
EVALUATE THE FUNDAMENTALS (25 MINUTES)
1. Use the ideas generated in the Warm-Up Activity as a jumping off point for evaluating a company
to determine whether it’s a good investment.
2. Explain that the “Fundamentals” of a company typically include the exploration of a company’s
operating and financial performance.
3. Distribute the “Exploring the Company’s Fundamentals” handout.
4. Walk through the components of the handout together.
5. Inform students that the class will evaluate Apple’s stock together.
6. Have students reference Google Finance and search for the company, Apple (Nasdaq; AAPL).
Allow students a few minutes to familiarize themselves with the site.
7. Using Apple as an example company, guide students through the evaluation process outlined in
the Exploring the Company’s Fundamentals handout. Follow the prompting questions in the
handout to drive a discussion while referencing the company’s financials online.
8. Review the tips at the bottom of the handout and emphasize strategies that minimize the risks
inherent in stock investing.
9. Wrap up this part of the lesson by reiterating that students can use this approach to evaluate any
public company.
THE PRICE-TO-EARNINGS (P/E) RATIO (20 MINUTES)
1. Inform students that, in addition to examining a company’s fundamentals, they can also look at its
stock price and performance to get a sense for how the stock is doing in the market relative to
other companies. No matter how good the company is doing, an investor still has to look at price.
2. Write on the Board “P/E RATIO”. Ask students if they’ve heard the term and what they think it may
refer to.
3. Inform students that the PRICE TO EARNINGS RATIO is the most common metric investors look to as
a proxy for how much the market values a stock.
4. Remind students of the importance of COMPANY EARNINGS (the BOTTOM LINE) in stock investing
(shareholders own a claim to the Company’s future earnings).
5. Write the equation on the board:
9
P/E = Stock Price for one share
Company’s Earnings per one share (EPS)
6. Explain the following about P/E Ratios:
9
Earnings Per Share (EPS) – the denominator – shows how much in earnings an investor “owns”.
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The higher the P/E Ratio, the more investors are willing to pay per dollar of earnings.
7. Explain that, in order to be meaningful, a company’s P/E Ratio must be looked at in context of
other company’s P/E Ratios.
9
It’s helpful to compare P/E ratios across other companies in the same industry, or to its own
historical P/E.
9
Industries that are high-growth tend to have higher P/E ratios than slower-growth, more
mature industries.
9
For example, P/E Ratios of technology companies tend to be higher than those of utility
companies because they are considered to be higher growth.
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9
If a P/E is not listed, that means the company has negative earnings (net loss).
8. Walk students through the following examples:
9
If the price of a stock is $2.00, and the EARNINGS PER SHARE (EPS) is $1, the P/E would be 2.0.
That means you are paying two times earnings for the stock.
9
If the current price is $35 for one share and the past 12 months EARNINGS PER SHARE (EPS)
were $3.50 the P/E is 10.
9. Have students refer back to Apple’s stock page online. Locate Apple’s EPS and P/E Ratio. Look
at Apple’s industry classification, locate the Industry P/E Ratio, and compare Apple’s P/E to that of
its industry.
What’s in Your Portfolio?
1. Break students out into their Opening Bell investor groups from Units One & Two.
2. Ask students to use Google Finance to find the P/E ratio of each of the stocks in their portfolio.
3. Instruct students to compare P/E Ratios of their stock with the ratios of their fellow “investors-intraining”. Remind students their comparisons are most meaningful if they compare stocks within
the same industry. For example, each student can start by comparing the ratios of their tech
stocks.
4. Invite students to discuss how the market is valuing their companies comparatively, based on the
P/E ratios.
HOW TO READ A STOCK TABLE (20 MINUTES)
1. Explain that stock tables are published daily in newspapers including The Wall Street Journal or the
New York Times.
2. Pass out the “Sample Stock Table and How to Read a Stock Table” handouts and project it in front
of the class so students can follow along as you walk through it.
3. Walk through the visual with the class. Explain each column of the stock chart.
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Columns 1 & 2: 52-Week High and
Low
The highest and lowest prices at which a stock has traded
over the most recent 12 months.
Column 3: Company Name
This shows the name of the company, abbreviated.
Column 4: Ticker Symbol
The ticker symbol is the short-cut ID assigned to the company.
Column 5: Dividend Per Share
This indicates the annual dividend payment per share. If it is
left blank, then the company does not pay out dividends.
Column 6: Dividend Yield
The percentage return on the dividend (the annual dividend
per share divided by price per share).
Column 7: Price/Earnings Ratio
This is calculated by dividing the current stock price by
earnings per share from the last four quarters.
Column 8: Trading Volume
This reflects the total number of shares traded for the day,
listed in hundreds. (Just add “00” to get the actual number
traded.)
Column 9 & 10: Day High and Low
This shows the highest and lowest prices for which the stock
traded for the day.
Column 11: Close
The price at which the stock sold for the last trade of the day.
Column 12: Net Change
This is the dollar value change in the stock price from the
previous day's closing price. If the stock is "up for the day," its
net change was positive.
4. To summarize, ask students to identify which of the columns on the Stock Table fall into each of
the following four categories: Naming; Pricing; Trading Volume; and Dividend Activity. Inform
them of the following points within each category:
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Naming
(Columns 3 & 4)
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Company Name & Ticker Symbol.
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Stock tables are typically organized in alphabetical order according to the
Company Name.
Pricing
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52-week highs/lows show the level of volatility over the past year.
(Columns 1, 2, 7,
9, 10, 11, 12)
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Price-to-Earnings Ratio.
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Daily highs/lows show the volatility within the day, as does the Net Change
number.
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Close.
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Ask students to compare and contrast the trading volumes of the companies
in the table; point out the company with the lowest trading volume (1,500)
and the highest (3,102,800).
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Inform students that trading volume is, to some extent, a measure of Liquidity
for the stock. If trading volume is high (e.g. over 50,000), that means there is a
lot of buying and selling activity going on.
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Remind students that investors can reinvest any dividends they earn to
purchase additional shares and grow their portfolio accordingly.
Trading Volume
(Column 8)
Dividend Activity
(Column 5 & 6)
RESEARCH A COMPANY USING GOOGLE OR YAHOO FINANCE (25 MINUTES)
1. Pass out the “Company Analysis Worksheet”. Walk through the sections of the handout together
with students, and guide them through where to find the corresponding data using Google or
Yahoo Finance. As a class, enter in the ticker for Apple, and pull up its stock page.
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Company Overview: Do a walkthrough of the home (Summary) page of the stock. Point out
the following to students:
i. Related Companies (competitors)
ii. Sector & Industry
iii. Description of the Company
iv. Officers
Optional: Click onto the Industry link. Walk through features of the Industry page with the
class.
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Financials: On the stock’s home (summary) page, point students to the “Financials” Link on
the left hand side of screen (under the “Company” tab). Point out the links at the top of the
Financials page that link to the income statement, balance sheet, and cash flow.
- Show students how to shift from quarterly data to annual data.
- Guide students back to the stock’s summary page. Point to the gross margins and
operating margins on the right-hand side of the page.
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Stock Data: Guide students back to the stock’s summary page. Walk through where to find
the following:
-
Exchange & Ticker Symbol
-
Stock Price; P/E Ratio
-
Earnings Per Share
-
Div/Yield
-
52 Week High/Low
-
Have students click on the “Industry” link. Guide them to the P/E ratios of the
Company’s competitors and industry.
2. Pass out the “Magnetar Academy Stock Universe” handout. Inform students that they will choose
one stock from the universe to analyze today. Allow them to work in pairs if they’d like.
3. Remind students of the Peter Lynch theory of stock selection. (Invest in what you know.)
4. Pass out the analysis tools and allow students to get to work! Have the students refer back to the
Explaining the Company Fundamentals handout as a reference. They should complete the
Company Analysis Worksheet on their stock using Google or Yahoo Finance.
5. Circulate the room as teams do their research and field questions that come up.
6. After 20 minutes bring the class back together and call on a pair of students to share their
research and investment analysis.
At Home
Students should monitor their stock for the next two weeks. They should follow the stock’s closing quote
each day, as well as any stock news.
Closing Bell (Optional)
Using the Closing Bell list provided by Magnetar Academy, you can either use this time to teach one of
the 5-minute Mini-Lessons on the stock-related concept, OR look up the "stock of the day" on Yahoo or
Google Finance with the class and project the page (if possible). Discuss recent news, performance, and
other matters (e.g. industry announcements) related to stock’s performance. Alternatively, use the Wall
Street Journal newspaper and read from it to the class.
i
http://www.google.com/finance
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U3LP5 Handouts
Exploring The Company’s Fundamentals
Use the following framework to investigate companies that you’re considering as investments.
Remember the Peter Lynch theory of stock selection – “Invest in What You Know.”
Evaluate
What to Look For
9
What does the company do?
9
How do they make money? (e.g., do they sell a product, invent technology, sell a service,
combination?)
9
Is demand for their product increasing?
9
Are the company’s products & services high quality?
9
What are the prospects for the industry?
9
Who are the company’s major competitors?
9
What do the overall financials tell us about the health of a company?
9
Have sales been increasing over time?
9
How does revenue compare to costs?
9
Profitability: What are the Gross Margins, Operating Margins, and Earnings?
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Does the company have a lot of debt relative to its size?
The Business
The Industry
The Financials
The Ideal Company
Of course, there is no such thing as the ideal company. When it comes to investing there is always some
amount of risk involved. However, there are strategies you can take to minimize those risks and help you
identify the most promising companies.
Tips!
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Look for companies that offer a high quality product or service that you (and people you know) know
and use regularly. This means you likely have a stronger understanding of the industry, as you are part
of the customer market.
9
Target companies in growth industries.
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Look for companies that have shown strong financial performance over time.
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In an economic downturn, target companies that make products people always need even when
times are tough (i.e., staples not luxuries).
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Red Flags include:
o
Earnings slowing or declining
o
Sales slowing; Management selling stock
o
Companies that are getting too much press
o
Prices much higher than their industry peers
o
Too much debt (Current Assets/Current Liabilities should exceed 2x)
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Sample Stock Table
Column 1 Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
Column 10
Column 11
Column 12
Columns 1 & 2: 52-Week High and Low
The highest and lowest prices at which a stock has traded over
the most recent 12 months.
Column 3: Company Name
This shows the name of the company, abbreviated.
Column 4: Ticker Symbol
The ticker symbol is the short-cut ID assigned to the company.
Column 5: Dividend Per Share
This indicates the annual dividend payment per share. If it is left
blank, then the company does not pay out dividends.
Column 6: Dividend Yield
The percentage return on the dividend (the annual dividend per
share divided by price per share).
Column 7: Price/Earnings Ratio
This is calculated by dividing the current stock price by earnings
per share from the last four quarters.
Column 8: Trading Volume
This reflects the total number of shares traded for the day, listed
in hundreds. (Just add “00” to get the actual number traded.)
Column 9 & 10: Day High and Low
This shows the highest and lowest prices for which the stock
traded for the day.
Column 11: Close
The price at which the stock sold for the last trade of the day.
Column 12: Net Change
This is the dollar value change in the stock price from the
previous day's closing price. If the stock is "up for the day," its net
change was positive.
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How to Read a Stock Table
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Company Analysis Worksheet
Use the following to collect information on the Company you are evaluating.
COMPANY OVERVIEW:
Company Name:
Industry:
Business Description (Products & Services):
CEO (Chief Executive Officer):
Key Competitors:
Customers:
THE FINANCIALS:
Most Recent Year’s Sales (Revenue):
Over the past three years, have sales been
growing? What is the trend?
Most Recent Year’s Earnings (Net Income):
Over the past three years, what has been the
Earnings trend? Growing? Declining? Stagnant?
Profitability:
Gross margin?
Operating margin?
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STOCK DATA:
Exchange and Ticker Symbol:
Stock Price:
P/E Ratio:
How does the company’s P/E compare to its
industry and competitors?
Earnings Per Share (EPS):
Does the company pay Dividends?
52-week High and Low:
How close is the stock currently trading to its
52-week high or low?
INVESTMENT SUMMARY
Investment Merits
Key Risks and/or Red Flags
Company Overall
Industry
Financials
Stock History
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UNIT 3: INVESTING AND THE STOCK MARKET
Lesson Plan 6: Stock Analysis (2)
Duration: 90 minutes
Lesson Summary
Students will build on their credit-analysis experience in Unit Two and apply this to stock evaluation.
Students will begin to read and interpret stock prices and stock charts using online and offline resources.
Lesson Objective(s)
à Interpret a company’s stock chart and explain the terms therein.
à Identify and utilize online stock analysis tools.
Lesson Materials
Google Finance
Handouts and Resources:
9
9
9
vii
Apple Stock Chart
My Stock Sheet
Magnetar Academy Stock Universe*
*The Magnetar Academy Stock Universe is located in the Curriculum Binder as a separate insert and can also be found on the
Instructor Portal under “Other Program Documents”
Warm-Up Activity (5 minutes)
1. Have each student name the company they have been following.
2. Allow students to report on any activity that has occurred with their stock since the last class
session.
Learning Activity (80 minutes)
INTERPRETING A STOCK CHART (30 MINUTES)
1. Explain to students that there are many different kinds of stock charts.
2. Inform students that today they will interpret stock charts from Google Finance.
3. Pass out the “Apple Stock Chart” handout.
4. Ask students if there are any fields on the chart they recognize, and to try to recall their definitions.
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Company Name
9
Ticker Symbol
9
Volume
9
Market Capitalization
5. Ask students which fields are new to them? Can they predict their meanings?
6. Walk students through each of the definitions. Make the following points after each respective
definition has been read:
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Volume
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Ask students to recall the TRADING VOLUME from the previous lesson about stock tables.
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If a stock’s trading volume is unusually active on a certain day, it may be because some
recent news has come out that has led investors to either unload a particular stock (if it’s bad
news), or buy the stock (if it’s good news).
Average Volume
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Knowing the AVERAGE VOLUME over the past month can help you decide when the daily
volume is active enough to warrant notice.
Market Capitalization
9
Review the concept of MARKET CAPITALIZATION (Market Cap) with students. Ask if anyone
can recall what it means.
9
Market Capitalization is another way to think about the size – or the total value – of a
company based on its stock.
9
Market Capitalization is used to figure out if the company is considered LARGE-CAP; SMALLCAP; or MID-CAP.
9
If someone were to buy the whole company, they’d have to buy all the stock. How much
would it cost – If you multiply the stock price by all the shares of the company, you get the
Market Capitalization.
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Smaller-Cap companies are sometimes considered more volatile (risky), but also highergrowth. That said, there are lots of examples of very large companies that have gone under.
9
BETA is a formula that traders use to evaluate a stock’s volatility.
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Beta measures whether a stock is more risky or less risky than the overall stock market.
9
If beta=1, the stock’s volatility is perfectly correlated with that of the market. That is, if the
market as a whole is down 10%, that stock will also be down 10%.
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If beta is higher than 1, the stock is more volatile than the market. That is, if a stock’s beta is
1.5, this means that when the entire market is down (or up) by 10%, this stock’s price will be
down (or up) by 15%.
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Typically, large “blue-chip” companies have lower betas.
Beta
MY STOCK SHEET (25 MINUTES)
1. Have students get online to pull up the stock charts of their respective stocks on Google Finance.
2. Pass out the “My Stock Sheet” handout. Have each student fill out the handout based on their
own stock. Students can do this in pairs or groups if they’d like to work together.
3. If students are not already in groups, have them pair-share and talk to one another about what
they are finding about the stock they are researching. Instruct them to compare and contrast
their respective companies.
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ADDITIONAL ANALYSIS (25 MINUTES)
1. If there is additional time left, have students either:
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Complete their Company Analysis Worksheet from the Stock Analysis I lesson; or
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Begin to research other companies within the Magnetar Academy Stock Universe.
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Have extra copies of the Company Analysis Worksheet and the My Stock Sheet handouts in
case they are needed.
Closing Bell (Optional)
Using the Closing Bell list provided by Magnetar Academy, you can either use this time to teach one of
the 5-minute Mini-Lessons on the stock-related concept, OR look up the "stock of the day" on Yahoo or
Google Finance with the class and project the page (if possible). Discuss recent news, performance, and
other matters (e.g. industry announcements) related to stock’s performance. Alternatively, use the Wall
Street Journal newspaper and read from it to the class.
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http://www.google.com/finance
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U3LP6 Handouts
Apple Inc Stock Chart
Apple (NASDAQ:AAPL)
Range
440.20 - 449.99
Div/yield
52 week
385.10 - 705.07
EPS
Open
440.80
Vol / Avg.
8.87M/11.45M
Mkt cap
406.79B
P/E
Shares
3.05/2.72
40.04
908.44M
Beta
0.98
Inst. own
64%
11.18
Range
The range that a stock’s price has varied by over the course of the day.
52wk Range
The range of prices a stock has sold for over the course of the last twelve months.
Open
The price of the first share of stock sold today.
Volume/Average
Volume
Trading volume is the total number of shares of that stock that have been traded
throughout the day. Average volume is measured over the last 30 days.
Market
Capitalization
The total dollar value of the company’s stock. It’s determined by multiplying the total
number of shares by the share price.
P/E
Price-to-Earnings Ratio - the relationship between the price per share and the income
earned per share by the company. It is the share price divided by the Earnings-PerShare (EPS).
Div & Yield
The dividend is the most recent payment the company pays to shareholders based
on its profits. The yield is the dividend expressed as a percentage of the share price.
EPS
The amount of Earnings (Net Income) the company made over the past 12 months,
divided by the number of shares the company has outstanding.
Shares
Outstanding
The total number of shares currently owned by investors.
Beta
A measure of volatility of a stock, relative to the larger market. Beta tells you whether
a stock is more volatile (risky) than the market as a whole, or less risky that the market
as a whole.
Institutional
Ownership
The percentage of shares that are held by Institutional investors (e.g. investment
companies), as opposed to individual investors.
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My Stock Sheet
Company Name
My Notes and Observations
Stock Ticker
Day’s Range
52wk Range
Opening Price
Volume
Avg Volume
Market Capitalization
P/E Ratio
Div & Yield
EPS
Shares Outstanding
Beta
What stands out to you most about this stock? What concerns you?
Given your fundamental analysis, does anything in this stock analysis surprise you?
Does this data change or confirm your thoughts about the investment merits and risks of this
Company?
Are there any new risks and/or merits you have discovered by analyzing the stock activity?
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Unit Three Quiz
Name:
Date:
Instructor:
Question 1
Identify one way in which investing is different from saving. (1 point)
Question 2
Explain, in your own words, the relationship between risk and reward in investing. (1 point)
Question 3
Which of the following has the HIGHEST level of risk? (1 point)
a) A Certificate of Deposit
c)
A bond issued by Apple
b) A share of IBM Stock
d) A United States Savings Bond
Use Elissa’s Investment Profile to answer Question 4
Elissa
Age: 32
Current Investments
Percentage of Overall Investments
Cash Investments
35%
Bonds
50%
Stocks
15%
Question 4
Is Elissa’s portfolio conservative, moderate, or aggressive? Explain. (2 points)
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Use Juan’s Investment Goal Profile to answer Question 5:
Juan
Age: 26
Financial Goal: Invest to buy a house
Time Horizon
12 years
Risk Tolerance
Aggressive
Priority
Growth
Question 5
a) What saving or investment vehicles would you MOST suggest that Juan include in his portfolio to meet his goals?
(Choose one) (1 point)
I.
Stocks
II.
Bonds
III.
Certificate of Deposit
b) Explain why your recommendations align with the elements of Juan’s profile. (I point)
Question 6
Why does a company decide to ‘go public’? What is one benefit of becoming a publicly traded company? (1
point)
Question 7
Identify one factor that can drive the price of a Company’s stock in the market: (1 point)
Question 8
Jimmy just bought stock in a relatively small company (currently valued at $400 million dollars) that has invented a
new kind of computer chip technology. Because this company is investing all of its money into growing the business,
they do not pay a dividend to investors on a regular basis.
What kind of stock did Jimmy invest in? (1 point)
a) A large cap income stock
c)
A small cap growth stock
b) A small cap income stock
d) A large cap growth stock
Question 9
Estelle is looking at a company’s fundamentals to determine whether or not she should invest in its stock. List one
thing Estelle should look at as she analyzes this company, and why it is important. (2 points)
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Question 10
Match the stock table terms on the left with their definitions on the right: (7 points)
a) The price of a share of stock divided by the company’s earnings per share for the
P/E
last year.
Yld%
52-Week High and
Low
Change
b) The highest and lowest price for the stock during the past year.
c) The difference between the last trade and the previous day’s price.
d) The yield, or rate of return, on a stockholder’s investment.
e) The total dollar value of a company’s stock, determined by multiplying the total
number of shares by the share price.
Beta
Volume
Market Capitalization
f) A measure of volatility of stock. This number tells you whether a stock is more
volatile (risky) than the market as a whole
g) The total number of shares of that stock that have been traded the day.
Question 11
Jon talks to you about a company that is the global leader in sunscreen. This company’s stock is: (1 point)
a) Cyclical stock
b) Non-Cyclical/ Defensive stock
Question 12
a) What is one macro-level risk factor that could affect the worth of Jon’s stock in the sunscreen sector? (1 point)
b) What is one industry-level risk factor that could affect the price of Jon’s stock in the sunscreen sector? (1 point)
Total Points: ______
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Unit 3 Quiz – Answer Sheet
Total Points Possible: 22
Q
Answers and Sample Student Responses
1
The interest rate earned on a savings account is
lower than the rate of inflation, therefore over time
your money can actually decrease in value.
Investing allows you to keep up with inflation and
have your money grow. And so, the compound
returns from successful investing are much higher
than saving. Another difference is that investing
implies taking on risk of losing the money you
invested. Savings should be done with less or no risk.
2
Generally, the greater the potential for an
investment to increase substantially in value, the
greater the risk it might also drop substantially.
3
B - A share of IBM Stock
Points
Lesson
Origin
Lesson Objective(s)
1
1
Compare and contrast saving
and investing
1
1
Describe the relationship
between risk and reward in
investing.
1
1
Differentiate between stocks,
bonds, and cash investments.
2
2
Differentiate between
conservative, moderate and
aggressive risk profiles.
4
Elissa has a Moderate portfolio profile. This is
apparent because she has some, though a
minimum amount, of her investments in stocks (the
riskiest kind of investment) and has most of her
money in bonds and cash investments. This profile
suggests that she is interested in taking some risks,
but still wants to make some predictable
investments, both of which are key components to
a moderate profile.
2
2
5
5a) Stocks
5b) Juan has a long time horizon to buy a house, so
he can be somewhat more risky with his investments,
and ride out any short-term losses. Additionally,
given that his risk tolerance is aggressive and he
wants to see growth, investing in stocks is his best
option. While stocks carry the greatest investment
risk, they also have the highest potential for growth
and reward for an aggressive investor like Juan.
Match saving and investment
vehicles to financial goals and
risk profiles; Differentiate
between short and long term
investment horizons and
corresponding strategies.
1
3
6
A company that is publicly traded may be able to
raise more money by allowing the general public to
purchase stock and become investors
Explain how the stock market
works and what drives prices.
1
3
7
One factor that may drive the demand to buy or sell
a company’s stock might be the market
expectations of the company’s earning potential
Explain how the stock market
works and what drives prices.
8
C - A small cap growth stock
1
3
2
5
9
Possible answers include: The strength and the
outlook of the company’s Industry; The company’s
competitors; Their customers; the company’s
financials; trends in sales and earnings; the
company’s products and whether or not there is an
increasing demand.
Differentiate between different
kinds of stock.
Evaluate a company’s
fundamentals.
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Q
Answers and Sample Student Responses
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A - P/E D - Yld% B - 52 Week high Low C –
Change F – Beta G – Volume E - Market
Capitalization
11
A – Cyclical stock
12
a) One macro-level factor that could affect the
price of Jon’s investment in the sunscreen sector is
global weather patterns. For instance, if a cold front
hits the United States and summers are shortened,
people may be less likely to purchase sunscreen. If
expected demand for sunscreen declines, this
would negatively affect the stock price.
b) One possible industry-level factor might be new
restrictions imposed by the government on
sunscreen ingredients and/or formulation. If the
market believes that the required change in the
product will be hurt future profits of sunscreen
companies, the stock prices will go down.
U3 Stocks & Investing Unit Quiz 2015-16
Points
Lesson
Origin
Lesson Objective(s)
7
5 and
6
Interpret a stock table and
explain the terms therein.
1
4
2
4
Analyze how economic and
business factors affect the
market value of a stock.
Analyze how economic and
business factors affect the
market value of a stock.
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