Topic 7.3 Stocks

7.3 The Stock Market
Objectives
1. Understand the benefits and risks of buying stock.
2. Describe how stocks are traded.
3. Identify how stock performance is measured.
4. Explain the causes and effects of the Great Crash of 1929.

What is a stock, exactly how is it traded, and when is it a good investment?
Besides selling bonds, companies can sell stock to raise money. But stock represents ownership in a company.

Share – Portion of stock

Dividends – A companies profits paid out to shareholders. This is usually done four times a year.

Capital gain/loss – The difference between a selling price and a purchase price. If the selling price is bigger than the purchase price, it’s a gain. If the selling price is lower than the purchase price, it’s a loss.

Stock Split – The division of a single share of stock into more than one share.

EX: Suppose you own 200 shares of Google at $100 per share. The stock splits and now you have 400 shares at $50.

Companies have stock splits when they feel their stock is too expensive to buy.

Buying stocks can be risky because a company could potentially not make money and not pay dividends. Additionally, the share price could drop.

How Are Stocks Traded
Suppose you want to buy a stock in a company. Do you call up that company, no. You call a stockbroker.

Stockbroker – A person who links buyers and sellers of a stock.

Stock Exchanges – A market for buying and selling stock.

EX: NYSE and NASDAQ

Measuring Stock Performance
Bull Market – A steady rise in the stock market over a period of time.

Bear Market – A steady drop in the stock market over a period of time.

The Dow – An index that show how certain stocks have traded (around 30 stocks)

S&P 500 – An index that shows the price changes of 500 different stocks

The Great Crash of 1929
The 1920s saw a long-term bull market but in 1929 the stock market crashed leading to the Great Depression.

Speculation – The practice of making high-risk investments with borrowed money with the hopes of a big return