The US Stock Market & Stock Market Basics

Home , Stock, Stock exchange, Stock market

What is the US stock market? How do the features of this market work? What are the positive and negative aspects of this market system? What is a “stock market”?

• A “stock market” is where a business or company can sell pieces of itself to individuals • “Stock” = A share of the company’s earnings / capital

• In the US: • New York Stock Exchange (NYSE) • Dow Jones Industrial Average (DJIA) • NASDEQ • S&P 500 European “stock markets” (1300’s – present) The Buttonwood Agreement (1793) The New York Stock Exchange Board (1817) The New York Stock Exchange (1865-present) Dow Jones Industrial Average (1893-present) Iconic Highs and Lows (1920’s-1940’s) S&P 500 (1957-present) NASDEQ (1971-present) The Great Recession & Occupy Wall Street Movement (2000’s) NYSE + Euronext (2007) Why would a company want to sell itself through stock?

• Often companies need capital to continue to run • Borrow it? (Debt…) • Raise prices (Loss of business…)

• By issuing stock, companies get capital without debt or interest What benefit(s) does investing in stock bring to a shareholder?

• Benefits: • Extra income (“dividends”) • Easy to get rid of • Personal flexibility • Hope in the future • Personal taste / loyalty • Building credit for future investments • Financial experience • Greed?.... (Gordon Gekko) What is the most common form of stock?

• Two (2) major types of stock: • “Common” stock: Ownership of single share / flexible dividend • “Preferred” stock: No sole ownership / fixed dividend & preferred treatment Stock Introduction: IPO (Initial Public Offering) Stock Trading Floor: Stock Brokers Stock Trading Floor: Financial Advisors “The Chicken” Investors vs. “The Pig” Investors What negative effects come along with buying & selling of stocks?

• Often investing in stock can be risky • Loss of capital • Economic volatility • Personal / Professional Bankruptcy

• Criminal element: • “Insider” information / trading William Duer: “the First Insider Trader” (1780’s) Albert H. Wiggin’s profiting from the 1929 Stock Market Crash (1931) R. Foster Winans & “Trading on the News” (1982-85) Jordan Belfort & “The Wolf of Wall Street” (1987-1995) ImClone Stock & Martha Stewart (2004) Jeffrey Skilling & Enron Disaster (2006) What sets the value of stock for a company or stock-holder?

• Stock’s price is based on the value investors put in a particular company • é Value = é Price • ê Value = ê Price

• Factors: • Company earnings • World events • Market factors (“the invisible hand”) “The Bull” vs. “The Bear” Market