The Stock Market Game. Economics and the Stock Market. Micro vs. Macro Economics Going from a good idea to a corporation. Microeconomics. Microeconomics studies the behavior of the consumer, household, or firm. Scarcity and choice Utility and profit maximization
Economics and the Stock Market • Micro vs. Macro Economics • Going from a good idea to a corporation
Microeconomics • Microeconomics studies the behavior of the consumer, household, or firm. • Scarcity and choice • Utility and profit maximization • How do we allocate our budget, time? • How do firms allocate resources to produce goods and services? • Efficiency
Micro and the Stock Market • Look at one company: • 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: • How much competition in the industry? • Is the industry young or old?
Macroeconomics • 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 • Look at the whole economy: • 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 PublicFrom a Good Idea to a Corporation • 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 • 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
Different Types of Investments: • 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 • Stocks • You own a piece of the company • You make money if the company does well • Bonds • You loan money to a corporation or government • You earn the interest • Mutual Funds: • You own one portion of a collection of stocks, bonds, or other securities
The Three Main Markets • NYSE • New York Stock Exchange • Oldest, largest, best-known stocks • NYSE MKT LLC (formerly AMEX) • American Stock Exchange • Mid-sized growth companies • NASDAQ • Large, mid-sized, and small growth companies
The Difference Between Large and Small Companies • Large: • Often have high prices • Low risk of failure • Usually pay regular dividends • Small • Potential for growth is greater than for larger companies • General prices are lower
Long Term Investing The Best Route
Stock Splits • More shares are created at a lower price per share, the investor has the same equity • Indicated with an (s) in the paper • 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
WhatStocks Should I Buy?
Normal vs. Inferior Goods • Normal goods • Goods that you buy more during good economic times (gourmet foods, fresh veggies, individual entrees) • Inferior goods • 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.
SMG Basics • 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 • The team with the highest portfolio equity at the end of the game wins • Portfolio equity in the tenth week is used for final rankings
SMG Rules • Rules to note… • 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 • 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 • Must already own the stock • Must be a minimum of 100 shares (unless selling the only remaining shares) • 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 • 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. • 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… • Internet • 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