The US Stock Market & Stock Market Basics 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 .