A classroom activity for students grades 4 - 12

SMG Basics
 Real-time stock market simulation
 Played on the internet from any computer
 The game runs for ten weeks in the fall, spring, and late spring. A new whole year game is also available.

SMG Rules
 Transactions are made at the SMG
WorldWide site at: www.smgww.org
 Trades are processed in 5 – 20 minutes

SMG Basics
 Each team begins with a hypothetical $100,000
 Teams should have one to five players

SMG Basics
 Teams may buy, sell, short sell , or short cover their stocks
 Invest in common stocks, mutual funds and ETFs traded on the three major exchanges: American , New
York , and NASDAQ Stock Exchanges

SMG Basics
 A 2% brokers fee is charged for each buy or sell – limits day trading issue
 Stocks valued at less than $5.00
per share may not be bought
 Teams may borrow up to $100,000 to purchase stocks on margin -- interest is charged

SMG Rules
 Stock and cash dividends and splits are automatically computed into team portfolios
 Portfolios are updated and available on a daily basis
 Rankings are updated every weekend
 Teams will not appear in the rankings until a trade is made

SMG Rules
 2% annual rate of interest is earned on cash balance
 7% annual rate of interest is paid on negative cash balances (borrowed money)

 Trades are made based on prices at time of order (market order).
 Trades entered after 4:00 p.m. will are made at the next day’s opening price .
 You may trade only stocks and mutual funds that have traded within the last 7 days.

SMG Basics
 Portfolios are not liquidated at the end of the game and should not be liquidated at the end of the game
 The team with the highest portfolio equity at the end of the game wins
 Portfolio equity in the tenth week is used for final rankings







SMG Levels

General Information
 Ticker symbols are available online
 Must be for a minimum of 100 shares
 May set a maximum purchase price limit
 Called a “Long” position

General Information
 Must have closing price of at least
$5.00 per share
 No “penny” stocks
 Most brokers will not allow margin purchases of stocks below $5.00

General Information
 Must already own the stock
 Must be for a minimum of 100 shares (unless selling the only remaining shares) ex: If you bought 120 shares, then sold 100, you may then sell the remaining 20.
 May set a minimum selling price limit

 A limit order is an order that sets the maximum or minimum at which you are willing to buy or sell a particular stock.
 you want to buy stock ABC, which is trading at $12, you can set a limit order for $12.50. This guarantees that you will pay no more than $12.50 to buy this stock.
 you own stock ABC and it is trading at $15, you could place a limit order to sell it at $14.50. This guarantees that the stock will be sold at a price greater than or equal to $14.50 but not below.
 Best for overnight or weekend trades. The limit trade is executed only once.

General Information
Please Note:
For real time trading price limits are generally not needed except for trades entered after the market close.

General Information
 Short selling starts with borrowing a stock from your broker
 You sell the borrowed stock hoping to buy it back at a lower price and return (short cover) it to your broker for a profit
 All rules for buying still apply

General Information
 Must have already short sold the stock
 May set a maximum price limit
 All other rules for selling apply

General Information
Example: Short Selling and Covering
I feel that IBM stock is going to go down and want to short sell the stock.
 I am borrowing the stock from the broker (2% brokerage fee) and selling it. Now I’ve got cash.

General Information
Example: Short Selling and Covering
 When stock price is at its lowest, I short cover by buying the stock back in the stock exchange at the low price and returning it to the broker (2% brokerage fee). I keep what I didn’t spend.
 I get the difference between the high price and the low price minus the brokerage fees.

General Information
Long Positions:
A Long Position is a stock you own.
Ex: If a team owns 100 shares of
McDonalds, their long position
is 100 shares.
# of shares
X current price per share
= Value of Long Position

General Information
Short Positions:
A Short Position is a stock you borrowed from the broker and sold
# of shares
X current price per share
= Value of Short Position

General Information
=

General Information
Buying on Margin:
 You may borrow funds using the stock in your portfolio as collateral for the loan
 Interest charged at 7%

 At the beginning of the game, teams have $200,000 of purchasing power, 50% of which is collateralized by your initial cash portfolio of $100,000
 50% of value of long and short position is required as collateral (margin requirement)
Initial Margin Requirement = 50%
 Margin requirement is subtracted from Equity
 Remainder is matched dollar for dollar for total buying power

 If the Total Equity in your portfolio falls below
30% of the value of your long + short positions, your team will receive a “margin call”.
 SMG will automatically liquidate a portfolio that falls below the 30% rule until the minimum margin requirement of 30% is met.

Investment Basics
Different Types of Investments:
 Insured Savings Accounts
 Savings Bonds
 Certificates of Deposit
 Treasury Bonds
 Corporate Bonds
 Mutual Funds
 Stocks
 ETFs
 Collectibles
 Commodities

Investment Basics

Investment Basics
The Difference Between Stocks, Bonds, and
Mutual Funds
Stocks:
You own a piece of the company
You make money if the company does well
Bonds:
You loan money to a corporation or government
You earn the interest
Mutual Funds & ETFs:
You own one portion of a collection of stocks, bonds, or other securities

Investment Basics
The Three Main Markets:
NYSE:
N ew Y ork S tock E xchange Oldest, largest, best-known stocks
NASDAQ: ( N ational A ssociation of sized, and small growth companies
S ecurities
D ealers A utomated Q uotations) Large, mid-
AMEX:
A merican S tock Ex change Mid-sized growth companies

Investment Basics
Large:
 Often have high prices
 Low risk of failure
 Some pay regular dividends
Small:
 Potential for growth is greater
 Generally prices are lower

Investment Basics
Common Stocks:
 Pay dividends based on performance of the company
 Have higher risk but may have higher reward
Preferred Stocks:
 Dividend amount is preset
 Dividends are paid on preferred stocks before common stocks
 Have lower risk but may limit reward

 A security which is not traded on an exchange, usually due to an inability to meet listing requirements. For such securities, brokers/dealers negotiate directly with one another over computer networks and by phone. The NASD carefully monitors their activities.
 Be very wary of some OTC stocks, the OTC:BB
(Bulletin Board) stocks are either penny stocks or may hold bad credit records.

Investment Basics
Stock Splits:
 More shares are created at a lower price per share
 Stockholders profit if stocks go up
 Indicated with an (s) in the paper
Ex: Dell $109  $54

Mutual funds
 Closed-ended funds may be traded just like the stocks traded on the
NYSE, NASDAQ and American Stock
Exchanges.
 Open-ended mutual funds can also be traded but cannot be short sold or short covered.

Other Terminology:
Blue Chips the largest and most profitable stocks
Bull Market a market that is rising
Bear Market a market that is falling
Investment Basics

Investment Basics

Investment Basics
DJIA over last 33+ years:

Investment Basics
What stocks should I buy?
PE Ratio
 Price-to-earnings ratio.
 Earnings = earnings per share or firm profit divided by number of shares.
 More earnings per share given stock price results in a lower PE ratio and a better buy.
 Find PE ratios in the newspaper.

 American Stock Exchangewww.amex.com
 NASDAQwww.nasdaq.com
 NYSEwww.nyse.com
 CNNfnwww.cnnfn.com
 CNBCwww.cnbc.com
 EDGAR Database of Corporate Informationwww.sec.gov/edgarhp.htm
 Yahoo! Financehttp://finance.yahoo.com
 Google Finance http://finance.google.com/finance

Online Demo

Inside SMG WORLDWIDE (Team Pages)
 The blue Trading tab contains all the functions necessary to compile research and make trades.

Account Summary
This team has used some of its “margin”
“Min Maintenance” is 30% of the team’s long + short value. If the teams total equity were to fall below this number, they would receive a margin call.
 Check Account Summary and Transaction Notes for the status of your account balance and the trades you have entered.

The math…..
140,710 / (281,420 + 0) = 50%
146,560.56
– 140,710 = 5,850.56
84,426 / (281,420 + 0) = 30%

Account Holdings

“Short Sell” and “short cover” are the transactions used when taking a “short” position on a stock. A short position earns a positive return when the stock price falls.
Enter a Trade

52 Week
High
49
80
66
18
13
52
Week
Low
39
49
38
13
8
Stock Div Yield % P/E
Ratio
ABC 1.30 3.25% 20
BBA .40
.53% 26
CCI
LLY
1.20 1.87%
1.78 11.12%
XYZ ---0%
9
7
62
Sales 100s High Low Close Net Change
3314
73016
77723
13101
6
40
77
66
16
10
39
75
63
16
10
40
76
64
16
10
----
+ 1
+ 1
----
- 1

 Highest and lowest price a share of the stock has sold for in the past 52 weeks.
 Example ABC: High was 49
 Example ABC: Low was 39

 Varies by Newspaper
 Either company abbreviation or ticker symbol
 In A-Z order

 Annual Dividend per Share of
Stock
 Based on the rate of the Last
Quarterly Payout
 Annualized Data
 Example ABC: $1.30 per share
 Example: XYZ: $0 per share

 Known as Dividend Yield
 A Measure of the Income Produced by the Stock
 Is the Amount of the Dividend divided by the Price of the Stock

 Achieved by Dividing the Annual
Dividend by the Day’s Closing Price
 Example: ABC 1.30/40 = .0325
or as a percentage: 3.25%

 PRICE- EARNINGS RATIO
– Ratio: latest closing price of the stock to the latest available annual earnings per share of the firm
– Trailing P/E: is what is reported in the financial section of newspapers
– Forward P/E: based on forecasting net year’s future expected earnings

 Example: ABC – 20 P/E Ratio
– Indicates that ABC is selling for 20 times the company’s earnings
Example: XYZ – P/E Ratio is 62
– Indicates that XYZ is selling for
62 times the company’s earnings

 This represents the volume of transactions on the trading day
 Bought or Sold
 Presented in hundreds, simply multiple by
100
Example: ABC – 3314
Indicates that 331,400 shares traded

 This represents the highest and lowest selling price of the stock for the day.
 Example: ABC – high of 40 low of 39

 This represents the price of the last stock sold for the day
 Example: ABC – closed at 40

 This lists the net change between the closing price for the stock for the day and the closing price on the previous trading day
 Example: BBA: Today’s Close: 76
Net Change: + 1
Previous Day: 75

 A means of valuing common stock.
 Part of a firm’s profit that is allocated to each outstanding share of common stock.
 Can be a good indicator of fiscal health

 Many investors carefully watch this number
 In general, higher earnings per share means better dividend and overall stock performance.

 Calculated by dividing the closing price on the day being consider by the P/E ratio.
Example: Today’s Close P/E Ratio
40.00
20
Earnings per Share:
ABC – $2.00