Learning, Earning, and Investing
Investment Analysis
Funding for this workshop
is provided by:
National Council on Economic Education
US Dept of Education
University of Illinois Extension
The Moody’s Foundation
Instructors
Dr. Angela Lyons
Director, UIUC-Center for Economic Education
University of Illinois Urbana-Champaign
Jennifer Hunt
Consumer and Family Economics Educator
University of Illinois Extension
You will receive…
•
•
•
•
•
Curricula with lessons and activities to use in the
classroom
6 CPDUs
Certification to reproduce and replicate workshop
materials
Network of colleagues to share experiences
Resources available at U of I Extension
Why Is Saving and Investing
Education Important?
Setting the Stage….
Increasing Consumer Responsibilities
•
•
Movement towards the
privatization of social
security.
Over 92% of pensions
today are defined
contribution plans, not
defined benefit plans.
Financial World Has Become More Complex
•
•
•
The number of financial services
offered to consumers has
increased.
There has also been an increase in
the number of financial products
that are offered.
Credit-scoring technology has
improved.
People Are Involved in the Financial Markets
•
•
Millions of small investors
have increased their net
worth by participating in the
stock and bond markets.
Millions of other investors
depend on income from
owning stocks and bonds.
Importance of Financial Education
Many Americans, especially
young adults, lack the basic
knowledge and skills needed
to make informed financial
decisions and manage their
investments effectively.
It’s Hard to Learn What You Are Not Taught
•
•
•
Financial education is a
growing national priority.
Stock market simulations and
games are very popular.
But young people can’t learn
financial skills unless they are
taught explicitly.
Several studies of financial
education programs,
especially those with specific
objectives such as
increasing savings or
decreasing debt, have
succeeded in improving the
financial behaviors of young
people and other consumers.
Where Do You Find Data?
The Federal Reserve Board
http://www.federalreserve.gov/
Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore.
2003. “Recent Changes in U.S. Family Finances: Evidence
from the 1998 and 2001 Survey of Consumer Finances.”
Federal Reserve Bulletin.
Learning, Earning and Investing
An Overview
• 23 lessons
• High school and middle school
• Complete lesson plans
• Web site (http://lei.ncee.net)
• Accompanies stock market
simulations or games
• Linked to standards: NCEE, NCTM,
Jump$tart
• Field tested and reviewed
Table of Contents
Theme 1: Basics of Financial Investing
1.
2.
3.
4.
Why Save?
Investors and
Investments
Invest in Yourself
What Is a Stock?
5. Reading the Financial Pages:
In Print and Online
6. What Is a Bond?
7. What Are Mutual Funds?
8. How to Buy and Sell Stocks
and Bonds
Theme 2: The Markets
9. What Is a Stock Market?
10. The Language of Financial Markets
11. Financial Institutions in the U.S. Economy
Theme 3: Financial Planning
12.
13.
14.
15.
16.
Building Wealth Over the Long Term
Researching Companies
Credit: Your Best Friend or Your Worst Enemy?
Why Don’t People Save?
What We’ve Learned
Theme 4: The Markets and the Economy (High School only)
17.
18.
19.
20.
How Financial Institutions Help Businesses Grow
How Are Stock Prices Determined?
The Role of Government in Financial Markets
The Stock Market and the Economy:
Can You Forecast the Future?
21. Lessons from History: Stock Market Crashes
22. Investing Internationally: Currency Value Changes
23. Investing Involves Decision Making
Lessons
•
•
•
•
•
Description
Key concepts
Objectives
Time required
Materials
•
•
•
•
•
Procedure
Visuals
Activities
Closure
Assessment (multiple-choice and essay)
* Glossary terms for all lessons (pp. 323-332)
Key Features of the LEI Web Site
About the Materials:
• Table of Contents
• Sample Lessons
• FAQs
• Order Information
Resources:
• Interactives
• Related Web Links
• Related Lessons
• Financial Calculators
• Glossary
• Visuals on PowerPoint
Web Site:
http://lei.ncee.net
Table of Contents:
Lessons
Concepts
National Standards
Resources:
Interactives
Investment Web links
Related Lessons
Visuals
Stock Market Simulations
Workshop Leader’s Guide
Interactives
•
•
•
Compound Interest Calculator
Illustrates graphically the dramatic effect that compounding can
have on investments over time
Word Search
Features a word search activity to introduce key financial terms
Chessboard of Financial Life
Illustrates the power of compounding interest
•
•
Reading the Financial Pages
Focuses on several components presented on the financial
pages of the newspaper
NCEE’s Historical Stock Market Simulation
Features a simulation in which students invest $10,000 using
the Callan Periodic Table of Investment Returns
Quick Recap: LEI Session 1
Lesson 4: What is a Stock?
Lesson 7: What are Mutual Funds?
Lesson 12: Building Wealth for the Long-Term
Lesson 15: Why Don’t People Save?
Lesson 5
Reading the Financial Pages:
In Print and Online
Stocks, Mutual Funds, and Bonds
•
•
•
Financial pages provide basic information about
stocks, mutual funds, and bonds.
Financial pages also include general articles about
the world of business and finance, government
activities, and the activities of companies and
industries.
The purpose of this lesson is to teach students how
to read financial tables for stocks, mutual funds, and
bonds.
3 Major US Stock Exchanges
•
•
•
NYSE
New York Stock Exchange
(www.nyse.com)
NASDAQ
National Association of Securities Dealers
Automated Quotation System
(www.nasdaq.com)
AMEX
The American Stock Exchange
(www.amex.com)
Activity 1: Reading a Stock Table (p.58)
Key Terminology (Visual 1, p. 55)
•
•
•
52-Week High and Low
Highest and lowest price of stock in the most
recent 52-wk period.
Stock (SYM)
Name of the company and stock symbol.
DIV
Dividend - Annual payment per share to
stockholders; usually paid quarterly.
•
•
•
YLD %
Yield – The dividend calculated as a percentage of the
closing price; the return on your invested money that
comes from dividends.
P/E ratio
Price/Earnings Ratio – Stock price divided by the
company’s annual earnings per share.
VOL
Volume – Shares traded the previous day.
•
•
CLOSE
Closing price – Price of the stock at
the end of the previous trading day.
NET CHG
Net change in the stock price from
the close of the previous trading
day.
Activity 2: Reading a Mutual Fund Table (p.61)
Key terminology for each fund (Visual 2, p. 56)
•
•
•
•
NAV
Net asset value per share of the fund at the close of trading day; the value
of a share of the fund; calculated by adding up the value of the stocks,
bonds, and other assets in the fund, subtracting fund’s liabilities and
dividing the result by the number of fund shares available.
NET CHG
Change in the NAV from the previous trading day.
YTD % RET
Year-to-date percentage change in the fund value.
3-YR % RET
Percentage change in the fund value over three-year period.
Activity 3: Reading a Bond Table (p.63)
Key Terminology (Visual 3, p. 57)
•
•
•
•
CUR YLD
Current Yield – Annual interest payment as a percentage of the
current bond price.
VOL
Trading day volume ( # of bonds bought and sold).
CLOSE
Closing price of the bond.
NET CHG
Net change in bond price in dollars and cents.
Activity 4: Tracking Stocks Online (p.65-66)
•
•
Students pick a stock and
track it over several days or
weeks.
Students choose a Web site
to find information about their
stock.
http://finance.yahoo.com
http://www.msnbc.com
click on “Business”
Other Web sites
•
•
•
•
http://www.usatoday.com
http://www.bloomberg.com
http://cbs.marketwatch.com
http://money.cnn.com
Subscriptions:
• http://online.wsj.com
•
http://www.chicagotribune.com
Activity 5: Scavenger Hunt (p. 67-68)
Students are sent on a
scavenger hunt, where
they use the financial
tables in newspapers and
Web sites to become
familiar with how to locate
information on specific
stocks, bonds, and mutual
funds.
Lesson 13
Researching Companies
Visual 1: Thinking Economically
About Researching Stocks
•
•
•
•
Recognize that you cannot know it all.
Select a few companies to research. Then follow their
progress closely.
Find a few good place to get stock information.
Stop looking for new information when you think the
benefits received from more information are less than
the costs of additional research.
Visual 2: Surprises are Rare
in the Securities Markets
•
•
•
•
Many individuals spend a great deal of time and effort trying to find
companies whose stock prices might increase faster than average
for the market.
Many financial institutions – brokerage companies, banks, life
insurance companies – spend even more time and effort trying to
identify companies whose stock prices might increase faster than
average for the market.
It is difficult to earn unusual gains in the stock market because most
of the information about most companies is already known.
People who earn above-average returns from their stock are
usually surprised. But it is hard even for experienced investors to
find surprises in the market.
Visual 3
An Example: LeBron James
•
•
•
LeBron James joined the NBA out of high
school. He is known for his ability to jump,
pass, involve teammates and score.
Some regard LeBron James as the Michael
Jordan of the future.
Could you make big money today by purchasing
Nike stock, thinking that its value might be
enhanced by the LeBron James connection?
Fundamental Analysis of Company Performance
(Analysis of Financial Statements - “The Basics”)
Factors to pay close attention to:
• Share Price
• Price/Earnings Ratio
• Annual Revenue or Sales
• Earnings Per Share
Activities 1 & 2 (p. 187-188)
Comparing different methods for selecting stocks:
• Pick stocks at random
• Focus on companies you know or that seem popular
• Research a company’s financial information
• Seek expert advice
Look for the “basics” of the company:
• Headlines and press releases
• Financial statements
• Prospectus and annual reports
NEWS AND INFO
Headlines
Company Events
Articles about
companies and industries
SOUTHWEST AIRLINES (LUV)
“Passenger jet slides off
runway at Chicago airport”
FINANCIALS
Income Statement
Balance Sheet
Cash Flow
COMPANY PROFILE
Company Website
Key Statistics
Competitors
Industry
Technical Analysis of Company Performance
•
•
•
Method that predicts a stock’s price movements and future
market trends by studying charts of past market activity, which
take into account the stock’s price and trading volume.
Uses financial charts, tables, and ratios to predict future
movements in a stock's price.
Factors used to identify trading opportunities:
1) price, 2) volume, and 3) moving averages
TECHNICAL ANALYSIS
200-Day Moving Average
P/E Ratio
Volume
Lesson 18
How are Stock Prices
Determined?
Visual 10: Laws of Supply and Demand
Applied to Financial Markets
•
The law of demand states (regarding stocks) that buyers
choose to purchase more shares at lower prices and fewer
shares at higher prices.
•
The law of supply states (regarding stocks) that sellers
choose to sell more shares at higher prices and fewer
shares at lower prices.
•
An equilibrium price exists when the quantity of shares
demanded at that price equals the quantity of shares being
supplied.
•
Stock prices change as a result of changes in the supply
and demand for shares of the stock in question. Shifts in
supply and demand can establish new equilibrium prices.
Activity: Stock Price Simulation Game
•
•
•
Students use knowledge of supply and demand to participate
in a stock market simulation, which shows how the price of a
share of stock is determined in a competitive market.
Divide the class into buyers and sellers. Distribute BUY and
SELL cards and score sheets. Assign one student to be
keeper of the cards and another to record the transactions.
Clear a space that will serve as the TRADING FLOOR.
When the MARKET IS OPEN, buyers and sellers meet on
the trading floor and try to agree to a price for one share of
stock.
•
•
•
Buyers start the game with one BUY card on their score sheet.
The goal is to buy at the lowest price they can. If the price they
pay is equal to the price on their BUY card, buyer breaks even.
If less than, there is a gain. If more than, there is a loss.
Sellers start the game with one SELL card on their score
sheet. The goal is to sell at the highest price they can. If the
price they pay is equal to the price on their SELL card, seller
breaks even. If more than, there is a gain. If less than, there is
a loss.
Students buy (or sell) as many shares of stock as they can in
the allotted time. But the price of a transaction must always be
in multiples of 5 ($5, $10, $15, $20 and so on).
•
•
•
•
As soon as a stock is bought (sold), students record the
transaction on their score sheets. In addition, SELLER reports
the negotiated price to the recorder.
They then turn in their BUY (or SELL) card, receive a new
card, and begin the negotiation process again.
Students have 5 minutes to make transactions and then the
TRADING FLOOR IS CLOSED.
The game is played in three 5-minutes rounds. The goal is to
make as much money as you can by the end of the game.
Lesson 23
Investing Involves Decision Making
Visual 1:
Types of Investment Risk
•
•
•
•
Risk of principal: The risk that some or all of the original deposit or
investment may be lost.
Market risk: The risk that the forces of supply and demand or
unforeseen events may affect the value of an investment adversely.
Interest-rate risk: The risk that interest rates will change. For
example, an investor may hold a fixed-rate investment such as a bond.
If the bond holder decides to sell the bond before maturity and market
interest rates are higher than what the bond is earning, the price of the
bond will be lower.
Inflation risk: The risk that the return on an investment will not keep
pace with inflation, and the saver’s purchasing power will fall.
Visual 2:
Risk Pyramid
Very High Risk
Junk bonds,
options
High Risk
Growth stocks, growth funds,
aggressive-growth mutual funds
Moderate Risk
Income funds, balanced mutual funds,
bond funds, municipal bonds,
corporate bonds, blue-chip stocks
Very Low Risk
Treasury bills, CDs,
money markets funds, savings accounts
Visual 3:
Elements of a Financial Plan
•
•
•
•
•
Financial goals
Net worth statement
Income and expense record
Insurance plan
Saving and investment plan
Focus of this lesson:
Saving and investment plans
Visuals 4 & 6:
Five-Step Decision Making Model (p. 315, 317)
1.
2.
3.
4.
5.
State the problem
List criteria
List alternatives
Evaluate alternatives
Make a decision
An Activity:
Using the Decision-Making Grid
Activity 2 (p. 319):
Important Things to Know About Your Clients
1. How much does the client have in savings?
2. Is the client able to save each month without borrowing?
3. Is the client responsible for people who are financially dependent?
4. How much risk is the client willing to take in order to pursue a higher rate of return?
5. How close is the client to retirement?
6. Does the client expect his or her savings to generate current income?
7. Is the client primarily hoping for growth?
8. Would the client benefit from tax-deferred or tax-exempt investments?
Activities 3 & 4 (p. 320-322):
Using the Decision-Making Model for Investing
•
•
•
•
In this lesson, students become financial planners and offer
advice to four hypothetical clients.
Divide class into groups of 3-5 students. Each group
represents a financial planning firm.
Students use the completed “Decision-Making Model for
Investing” to make recommendations to their clients (p. 320).
Students choose no more than 3 alternative investments for
each client.
They recommend what percentage of savings each client
should place in the 3 investment alternatives. They list the
most important choice first and explain each recommendation.
Other LEI Lessons
Lesson 8: How to Buy and Sell Stocks and Bonds
(The Stock Market Play)
Lesson 9: What is a Stock Market?
(Meet the Stock Markets)
Lesson 10: The Language of Financial Markets
(Language of Financial Markets Bee)
Lesson 16: What We’ve Learned
(The Flyswatter Review)
Helpful Resources
University of Illinois Extension
Consumer and Family Economics
www.ace.uiuc.edu/cfe
National Council on Economic Education
www.ncee.net
Illinois Council on Economic Education
www.econed-il.org
University of Illinois Extension
Consumer and Family Economics
www.ace.uiuc.edu/cfe
NCEE
www.ncee.net
Summary and Questions
The Stock Market Game™ Program
www.stockmarketgame.org