Economics

Unit Two

• Invest in Yourself - Overview

• Education as an investment

Why Invest?

What might be a reason to invest in the stock market?

Do these investments always leave us better off? Why not?

Investing is like buying something. Should you buy something you don’t understand?

Stock Market Performance since 1895

Risk vs. ReturnType of Investment Possible Returns/Risks

Collectibles/Commodities Illiquid Market/Impacted by volatile conditions (ie., weather)

Stocks Subject to risks of the company and broader economy

Corporate Bonds Subject to risks of the company, but, get preferential treatment to company assets

Government Bonds Risk depends on the entity sponsoring the bonds

Money Market, CD’s, Savings and Checking Accounts

Like Cash and have some guarantees from the government

Most Risky

Least Risky

Investing in Stock

What is stock? What determines its “value”?

Why does the value of stock change?

- Both reality and perception matter to stock price

- History of performance

- Company expectations of future performance

- Peer/Competitor performance/behavior

- What do investors think about the future

Walmart (WMT)Started in 1962 by Sam Walton

Incorporated in 1969

Listed on the New York Stock Exchange in 1972

- Listed = Being Available to trade on a public exchange

- What is the advantage of being Listed?

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Walmart family still owns about 50% of the stock

Largest private employer in the world – 2.3 million employees

11, 695 stores; in 28 countries; $480B in sales (62% sold in the U.S.)

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Market value (Capitalization) - $240B Volume – 9M shares trade

daily

Stock Market Charts

Let’s start with Walmart Charts

• https://finance.yahoo.com/quote/WMT?p=WMT&.tsrc=fin-srch

Stock Market Project – phase I

Resources:

Chapters 11 – 14 in the Ryan text (p. 239)

Yahoo Finance - https://finance.yahoo.com/

Google Finance - https://www.google.com/finance

Investopedia -http://www.investopedia.com/markets/

The Street - https://www.thestreet.com/

Morningstar - http://www.morningstar.com/

Financial Literacy

• Curtis Carroll – Financial literacy isn’t a skill - it’s a lifestyle

https://www.youtube.com/watch?v=F89eycANUrQ

Curtis Carroll – Personal Finance made simple

Financial Literacy is not a skill – it’s a lifestyle

- Curtis Carroll

What is a stock?• Stock:

• Ownership in a corporation – either private or public• You own a % of the company• Also known as a Financial Security• But….

• You have no say in business operations of a public company

• You make or lose money based on the increase / decrease in the stock priceInfluenced by performance – profits, growthThe laws of supply and demand apply to stocks

Where Stocks are Traded: ExchangesPublic Co. can either hire NYSE or Nasdaq to be in charge of their trades

• The New York Stock Exchange: NYSE

• Wall Street, in NYC

• It is the largest stock exchange in the world by dollarvolume

• Nasdaq: National Association of Securities Dealers Automated Quotations

• It is the largest electronic screen-based equity securitiestrading market in the United States

Stock Market Indictors/Indices:

• If the DJ and the S&P is UP on average, then overall, the economy is considered to be doing well

• If the DJ and the S&P is DOWN on average, then overall, the economy is considered to be doing poorly

• The Dow Jones• It is the oldest continuing U.S. market index • Today, the averages consists of 30 of the largest and most widely held public companies in the United

States.

• The S & P • is a stock index that tracks 500 prominent companies

The S & P 500

• Standard & Poor's breaks stocks into 10 sectors• Best performers within those 10 sectors

and dozens of industries. Generally speaking, different sectors are affected by different things. So at any given time, some are doing well while others are not.

• In most cases health care, and technology tend to be the fastest growing sectors

• While consumer staples and utilities offer stability with moderate growth

• The other sectors tend to be cyclical, expanding quickly in good times and contracting during recessions

You will definitely run into these terms

• Volume – how many shares are bought in a day/ sold in a day…trading activity!

• EPS – Earnings Per Share –• On average, how much $$ (profit) each share of the companies

stock earns

• Example

Walmart earns $13 Billion

Walmart has 500,000,000 shares owned by the public

They are earning $26/share

WARNING – That is not the stock price, just a measure of how they are doing

Buying Stocks on MarginIn the Stock Market Game, as in real life, you can borrow against the value of your stock and invest that money.

Example:

- You have a $100,000 portfolio

- In the SMG, you can borrow $50,000 more and invest that amount

- You pay interest (7%) on what you borrow

- You are basically betting that your stocks will increase more than the interest you pay

- In real life when your investments do badly, this increases the BADNESS

How is the Market doing…. ?

• Bull Market

• Bear Market

Stocks and Stock Market - things to know

Ticker Symbol – Every name (stock) on the market has its own unique symbol:

Apple – AAPL

Alphabet (Google) – GOOG

McDonalds – MCD

Prices are always stated in $/share

There are many places company performance, like EPS is published

• A company’s recent results are an important indicator on how they might do in the future• Net Income (profitability)

• Analyzes their Revenue (Sales) and Expenses (Bills)

• This is found on their Income Statement

Information to check