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National Council of Economic Education Carolyn Shirk Vice President 849 Tame Deer Drive Winfield, PA 17889 Cell: 570-97 PowerPoint Presentation
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National Council of Economic Education Carolyn Shirk Vice President 849 Tame Deer Drive Winfield, PA 17889 Cell: 570-975-5149 570-374-9467 Investment Basics Investment Basics Stock Market IQ Quiz Investment Basics True or False

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slide1
National Council of Economic Education

Carolyn Shirk

Vice President

849 Tame Deer Drive

Winfield, PA 17889

Cell: 570-975-5149

570-374-9467

slide3

Investment Basics

Stock Market IQ Quiz

slide4

Investment Basics

  • True or False
  • Stocks are items found in the storeroom of a grocery store.
  • Only rich people invest in the stock market.
  • Most stocks on the stock market are sold by the United States Government.
  • If the stock market goes up 30 percent one year, it will fall by 30 percent in the next year.
slide5

Investment Basics

  • Any stock that goes up in price must eventually come back down.
  • Bears, Bulls, and Pigs are found in the stock market.
  • Stock prices are set by the Securities and Exchange Commission, a regulatory agency of the U.S. government.
  • Stock markets are open on business days around the clock, around the world.
slide6

Investment Basics

  • Sometimes companies buy their own stocks on the stock market.
  • It is hard to buy a good stock today because all the good ones have already been purchased.
  • Buying stocks is a sure way to make money.
  • Corporations sell new issues of stock on the New York Stock Exchange.
slide7

Investment Basics

  • “Insider” stock trading means that trading stocks takes place inside a building.
  • People can buy stocks on the internet.
  • When the stock market goes up, it causes the economy to grow.
  • From Learning from the Market, © National Council on Economic Education, New York, NY
slide8

Investment Basics

Different Types of Investments:

  • Insured Savings Accounts
  • Savings Bonds
  • Certificates of Deposit
  • Treasury Bonds
  • Corporate Bonds
  • Mutual Funds
  • Stocks
  • Collectibles
  • Commodities
slide9

Investment Basics

The RISK to RETURN Relationship:

The RISKIER the Investment -

The HIGHER the Return

slide10

Investment Basics

The Difference BetweenStocks,Bonds,andMutual 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

slide11

Investment Basics

The Three Main Markets:

NYSE:

New York Stock Exchange Oldest, largest, best-known stocks

NASDAQ: Large, mid-sized, and small growth companies

AMEX:

American Stock Exchange Mid-sized growth companies

slide12

Investment Basics

The Difference BetweenLargeand SmallCompanies:

Large:

  • Often have high prices
  • Low risk of failure
  • Usually pay regular dividends

Small:

  • Potential for growth is greater than for larger companies
  • Generally prices are lower
slide13

Investment Basics

Common Stocks:

  • Pay dividends based on performance of the company
  • Have higher risk but may have higher reward

Preferred Stocks:

  • Dividend amount is preset
  • Dividends are paid on preferred stocks before common stocks
  • Have lower risk but may limit reward
slide14

Investment Basics

  • Stock Splits:
  • More shares are created at a lower price per share
  • Stockholders profit if stocks go up
  • Indicated with an (s) in the paper
  • Ex: Dell $109  $54
slide15

Investment Basics

Other Terminology:

Blue Chipsthe largest and most profitable stocks

Bull Market a market that is rising

Bear Marketa market that is falling

slide16

Investment Basics

Why long term investing is the best route?

pe ratio or price to earning ratio

Investment Basics

What stocks should I buy?

PE Ratio or Price-to-Earning Ratio
  • Market Value Per Share/Earnings per Share

If a company is currently trading at $43 a share and the EPS over the last 12 months were $1.95 per share, the P/E ratio for the stock would be $22.05

($43/$1.95)= $22.05

slide19

Investment Basics

Earnings Per Share

  • Earnings per Share or EPS is the firm profit divided by number of shares.
  • Find EPS and PE ratios on the internet & newspaper
pe ratio
PE Ratio
  • More earnings per share given stock price results in a lower PE ratio and a better buy.
  • PE Ratios show how much an investor is willing to pay per dollar of earnings
pe ratio21
PE Ratio
  • PE Ratios show how much an investor is willing to pay per dollar of earnings
  • Mattel: An investor is willing to pay $15.81 for every dollar of earnings
slide22

Apple Inc.

  • Beta = 1 means that the stock and market change by the same percentage.
  • Larger beta means a larger change than the market on any given day.
  • Beta = % change in stock return / % change in market return.
where to get more information
Where to get more information
  • American Stock Exchange- www.amex.com
  • NASDAQ- www.nasdaq.com
  • NYSE- www.nyse.com
  • CNNfn- www.cnnfn.com
  • Google -http://finance.google.com/finance
  • Database of Corporate Information- www.sec.gov/edgarhp.htm
  • Yahoo! Finance- http://finance.yahoo.com
slide24

Economics and the Stock Market

  • Micro vs. Macro economics
  • Going from a good idea to a corporation
slide25

Micro vs. Macro

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
slide26

Micro vs. Macro

Micro and the Stock Market

  • Look at one company:
    • How does this company make its product?
    • Who buys this product?
    • Does the company have good managers?
  • Look at one industry:
    • How much competition in the industry?
    • Is the industry young or old?

What stock brokers and mutual fund managers get paid to do!

slide27

Micro vs. Macro

Macroeconomics

Macroeconomics studies the economy as a whole or as aggregates and attempts to predict or forecast changes in national output, unemployment, and inflation.

slide28

Micro vs. Macro

Macro & the Stock Market

  • Look at the whole economy:
    • Inflation: Producer and Consumer Price Indices (PPI & CPI)
    • Unemployment: Unemployment rate
    • Interest rates: actions of the Fed
    • Productivity
  • Use information to estimate good times to buy and times to sell.

Note: an “active” investor thinks about how these indicators will affect the economy in 3 months!

when is the news good
When is the news good?
  • Example: decrease in the unemployment rate:
    • Good: sign of a growing economy  increased consumer spending  increased profits.
    • Bad: indication of future labor shortages  increasing wages  inflation  fed increases interest rates  decrease profits, slow growth.
slide30

U.S. Department of LaborBureau of Labor Statistics

“Economy at a Glance” http://www.bls.gov

slide31

Going public

Going Public: From a Good Idea to a Corporation

  • Product idea: on-line financial services including banking, investments, retirement planning, estate planning, legal services, etc.
  • Need funds to start business - find investors “venture capitalists.”
  • Each investor owns a stake or “share” of the corporation and has limited liability.
slide32

Going public

Going Public: 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
important to stress at the end of the game
Important to Stress at the End of the Game
  • Diversification
  • Mutual Funds
  • Long-Term Proposition