WHAT IS THE
STOCK MARKET?
STOCK EXCHANGE
 The Stock Market is often referred to as an exchange
 Why? To exchange means to trade
 An stock exchange is a highly organized market where stocks and
other forms of exchanges are sold and bought
HISTORY
 First similarities to the investment process occurred in the 1600’s in the
East Indies
 In New York City, stock brokers would make trades on the streets
NEW YORK STOCK EXCHANGE
 In 1792, 24 stockbrokers signed the Buttonwood Agreement that
started the New York Stock Exchange
 This group of stock brokers was very exclusive
 They moved their operation indoors, to a coffee shop
NEW YORK STOCK EXCHANGE
 The stock brokers that were not a part of the group of 24 continued
to make trades in the street
 By 1901, the NYSE had grown to become a financial powerhouse
AMERICAN STOCK EXCHANGE
 Made up of the group of investors that was not included in the group of
24 that created the NYSE
 Known as “curbstone brokers” because they traded outdoors,
regardless of the weather
 Anyone could be a part of this group
 Took chances on smaller companies, emerging companies and new
investment opportunities
MERGERS
 Merger-two companies that are combined together to create one
 In 2007, Euronext, the European stock exchange merged with NYSE
 In 2008, the American Stock Exchange also merged with
NYSE/EURONEXT
 Global marketplace-bringing together of world markets in one exchange
NASDAQ
 National Association of Securities Dealers Automated Quotations
 Largest electronic screen based trading market in the U.S.
 Created in 1971
 World’s first ever completely electronic exchange
NASDAQ VS. NYSE
NASDAQ
 Trades occur electronically, on a
telecommunications network
NYSE
 Trades occur physically on the
trading floor
 Dealer’s market
 Auction market
MARKET PERCEPTIONS
 The NASDAQ and the NYSE are viewed differently
PERCEPTION OF THE NASDAQ
 Technology, internet and electronics
 Stocks considered to be uncertain and risky
 Lists companies that are growth oriented and expected to grow at an
above average rate
COMPANIES LISTED ON THE NASDAQ
 Facebook
 Microsoft
 Harley Davidson
 Weight Watchers
 Sony
 Papa John’s
PERCEPTION OF THE NYSE
 Companies are more well-established
 Blue chip companies-companies with a national reputation for quality,
reliability and the ability to operate profitably in good times and bad
 The stock of blue chip companies is known as “blue chip stock”
BLUE CHIP STOCK
 Why is it called blue chip stock?
 In the game of poker, which is a game of chance and risk, the blue chip
has the highest value
 Hence, the name “blue chip stock”-stock in companies with high value
BLUE CHIP STOCKS
 As a result of their high level of financial strength and market reputation,
blue-chip stocks traditionally carry substantially less risk than other
stocks. They are generally regarded as safe, sound investments.
EXAMPLES
 General Electric
 AT&T
 Proctor & Gamble
 Chevron
 Wal-Mart
 Boeing
LISTING A COMPANY
 Deciding which exchange to list your company on is important
 It usually comes down to cost
COST
NYSE
 Entry Fee: $250,000 (One time
fee)
 Yearly fee: based on the
number of shares, maximum of
$500,000
NASDAQ
 Entry fee: $50,000-$75,000
(one time fee)
 Yearly fee: based on the
number of shares, $27, 500
PUBLIC VS. PRIVATE
 Both the NASDAQ and the NYSE are public companies
 Both are also traded on the stock market
BULLS AND THE BEARS
 Figure of speech used to describe the condition of the stock market
 Bull market- a market in which stock prices are rising, encouraging
buying
 Bear market-a market in which stock prices are falling, encouraging
selling
VALUE OF STOCKS
 Stock prices change every day as a result of market forces. By this we
mean that share prices change because of supply and demand. If more
people want to buy a stock (demand) than sell it (supply), then the price
moves up. Conversely, if more people wanted to sell a stock than buy it,
there would be greater supply than demand, and the price would fall.
 The stock price also reflects the growth that investors expect in the
future
CHOOSING STOCKS
 You have to figure out what news is positive or negative for a company
 Every investor has their own ideas and strategy
 Price movement of a stock indicates what investors feel a company’s
stock is worth
VALUE
 The amount of money a company makes (profit) is what gives the stock
value, or makes it worth money
 If a company never makes money, they won’t stay in business
 Public companies must report their earnings 4 times a year
 Investors pay close attention to the earnings reports when they are
released
MARKET CAPITALIZATION
 There are two areas that determine a company’s worth
 Market capitalization is a big factor in determining a company’s worth
on the stock market
 Stock price multiplied by the number of shares outstanding
 Example:
 a company that trades at $100 per share and has 1 million shares
outstanding has a lesser value than a company that trades at $50 that
has 5 million shares outstanding ($100 x 1 million = $100 million while
$50 x 5 million = $250 million)
MAIN POINTS TO REMEMBER
 At the most fundamental level, supply and demand in the market
determines stock price.
 Price times the number of shares outstanding (market capitalization) is
the value of a company. Comparing just the share price of two
companies is meaningless.
 Theoretically, earnings are what affect investors' valuation of a company,
but there are other indicators that investors use to predict stock price.
Remember, it is investors' sentiments, attitudes and expectations that
ultimately affect stock prices.
 There are many theories that try to explain the way stock prices move
the way they do. Unfortunately, there is no one theory that can explain
everything.