Stock Notes
Applied Money Management
Objectives
You will be able to:
•Identify why the stock market is an integral part of our free
enterprise system and why corporations issue stock
•Accurately predict the impact of given scenarios on stock
prices
•Recognize their risk management strategy in comparison
to other strategies and
What Causes a Stock Price to Rise
• A stock’s price is based on how well the
corporation is doing
– for example: if the corporation is doing well,
its price will rise
• More Buyers than Sellers =
Market
What Causes a StockPrice to Rise
(cont’d)
• Reasons for increase in stock price
include:
– introduction of new product
– cheaper production than expected
– economic trends have positive effect for
company’s product
What Causes a Stock Price to Fall
• On the flip side…
– if a corporation is doing poorly, its price will
fall
• More Sellers than Buyers = ____ Market
What Causes a Stock Price to Fall
(cont’d)
• Reasons for decrease in stock price
include:
– corporation’s product gets undercut
– cost of production is higher than expected
– economic trends prohibit product sales
Partner Activity
• A - Apple iPods are introduced to the market for the first time. What
happens to Apple’s stock?
• B - Gas prices rise. What happens to the stock for Tesla (the electric
car maker)?
• A - Knockoff Hollister shirts are released. They are cheaper than
Hollister brand shirts. What happens to the stock for Hollister?
• B - Florida has unusually cold weather, negatively impacting the
crop of oranges, making oranges more rare and more expensive.
What happens to Tropicana stock?
• A - A serious hurricane hits and many buildings are damaged. What
happens to Home Depot stock?
Partner Activity, Continued
• B - Tax on cigarettes is increased by the federal government. What
happens to Malboro stock?
• A - An electronics company improves its assembly line to reduce the
cost of production. What happens to its stock?
• B - Enron is accused of insider trading (an illegal activity by the
executives). What happens to its stock?
• A - The U.S. declares a new military venture in response to civil
unrest in the Middle East. What happens to the stock of a military
equipment manufacturer?
• B - How did the BP Oil Spill impact the stock of BP?
Stock Certificates
Stock Markets
• A _____ _____ is a place where stocks
are bought and sold
• Exchanging of stock is usually done
electronically
• One of the last stock exchanges that still
offers face-to-face trades is the New York
Stock Exchange (NYSE)
Discussion
1. A buyer has $10,000 to invest, and would like to
buy 100 shares at $100 each of Feel Good
Pharmaceuticals
2. The buyer tells the trader.
3. The trader then asks a seller if they would like
to sell their stock. The seller agrees to sell 100
shares of Google for $100 per share. Then, the
buyer gives the trader $10,000 for the seller. The
trader keeps $20 for the trading fee.
What should the buyer do?
In the newspaper the next day, there is an article stating
that Feel Young Pharmaceuticals has found a cure for
cancer. This doubles their stock price and each share is
now worth $200.
What are the pros and cons of selling?
Not selling?
Active & Buy-and-Hold Trading
____ _____- actively buying and selling
The investor watches the market trends and makes
constant, fast decisions about what and when to buy
and sell.
When is this a good strategy?
____-and-______ trading
The investor purchases stocks or funds but does not
constantly monitor their progress.
When is this a good strategy?