The Stock Market
Game
Economics and the Stock Market
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Micro vs. Macro Economics
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Going from a good idea to a corporation
Microeconomics
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Microeconomics studies the behavior of the
consumer, household, or firm.
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Scarcity and choice
Utility and profit maximization
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How do we allocate our budget, time?
How do firms allocate resources to produce goods
and services?
Efficiency
Micro and the Stock Market
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Look at one company:
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How does this company make its product?
Who buys the product?
Does the company have good managers?
Who supplies the company?
Look at one industry:
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How much competition in the industry?
Is the industry young or old?
Macroeconomics
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Macroeconomics studies the economy as a
whole or as aggregates and attempts to
predict or forecast changes in national
output, unemployment, and inflation.
Macro and the Stock Market
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Look at the whole economy:
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Inflation: Producer and Consumer Price Indices
(PPI & CPI)
Employment: Unemployment Rate
Interest Rates: Actions of the FED (discount rate)
Productivity
Use information to estimate good times to
buy and times to sell.
Going Public
From a Good Idea to a Corporation
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Product idea: the “widget”
Need funds to start business – find
investors “venture capitalists.”
Each investor owns a stake or “share” of
the corporation and has limited liability.
Going from a good idea to a
corporation
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Suppose the company is doing well. You
need more money – Go public, “initial
public offering”
Going public: investment bank creates a
prospectus and buys all shares of stock
and resells them at a set price to the public
A “tombstone” is the public notice of an IPO
Investment Basics
Different Types of Investments:
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Insured Savings Accts
 Savings Bonds
Certificates of Deposit
 Treasury Bonds
 Corporate Bonds
 Mutual Funds
 Stocks
 Collectibles
 Commodities
The Difference Between Stocks,
Bonds, and Mutual Funds
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Stocks
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Bonds
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You own a piece of the company
You make money if the company does well
You loan money to a corporation or government
You earn the interest
Mutual Funds:
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You own one portion of a collection of stocks, bonds, or
other securities
The Three Main Markets
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NYSE
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New York Stock Exchange
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NYSE MKT LLC (formerly AMEX)
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American Stock Exchange
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Oldest, largest, best-known stocks
Mid-sized growth companies
NASDAQ
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Large, mid-sized, and small growth companies
The Difference Between Large and
Small Companies
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Large:
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Often have high prices
Low risk of failure
Usually pay regular dividends
Small
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Potential for growth is greater than for larger
companies
General prices are lower
Long Term Investing
The Best Route
Stock Splits
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More shares are created at a lower price per
share, the investor has the same equity
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Indicated with an (s) in the paper
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Example: You own 100 shares of Dell at $30 per
share. A 2-for-1 split of Dell stock means you
have 200 shares at $15 per share
What Stocks
Should I Buy?
Normal vs. Inferior Goods
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Normal goods
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Inferior goods
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Goods that you buy more during good economic times
(gourmet foods, fresh veggies, individual entrees)
Goods that you buy less of when economy is good
(cheap soda, potatoes, pasta, canned beans)
Stock traders watch this… If we’re experiencing
poor economic times, invest in inferior goods. If
we are in good economic times, invest in normal
goods.
How to Play the
STOCK MARKET
GAME
SMG Basics
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Real-time stock market simulation
Played on the internet from any computer
Each team begins with $100,000
10-week trading period (10/08/12-12/14/12)
Invest in most stocks and mutual funds
traded in the three major US exchanges
Teams of 2 students
SMG Basics
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The team with the highest portfolio equity at
the end of the game wins
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Portfolio equity in the tenth week is used for
final rankings
SMG Rules
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Rules to note…
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Transactions are made at the SMG WorldWide site at:
www.smgww.org
Trades are made based on prices at time of order. If
trades are made after 4:00 PM, then they are made at the
next day’s opening price (at 9:30 AM).
Game week runs Monday thru Friday.
Stock and cash dividends are automatically computer into
team portfolios
Portfolios are updated and available on a daily basis.
5% interest is earned on cash balance.
Rankings are updated every weekend.
Buying Stocks
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Ticker symbols available online
Must be a minimum of 100 shares
Must have a closing price of at least $5.00 per
share
Must not exceed total number of shares actually
traded on the market that day
May set a maximum purchase price limit, the
maximum you are willing to pay
Selling Stocks
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Must already own the stock
Must be a minimum of 100 shares (unless
selling the only remaining shares)
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Ex: If you bought 120 shares, then sold 100, you may then sell
the remaining 20.
Must not exceed total number of shares actually
traded on the market that day
May set a minimum selling price limit. The sale will
not go through until the stock price reaches or
exceeds the limit price.
Buying on Margin
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You may borrow part of the required funds using the stock in
your portfolio as collateral for the loan.
If the Total Equity in your portfolio falls below 30% of the
value of your ‘long’ and ‘short’ positions, your team will
receive a margin call. This figure is only relevant for teams
that have borrowed money.
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Interest charged at 7%
Initial Margin Requirement = 50%
Margin call must be satisfied by 3rd week
Maintenance requirements are calculated as % of total
value of long and short positions
Where to get more info…
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Internet
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Yahoo! Finance: http://finance.yahoo.com
The Street: www.thestreet.com
NYSE: www.nyse.com
CNNfn: www.cnnfn.com
EDGAR Database of Corporate Information:
www.sec.gov/edgarhp.htm
GOOD
LUCK!