Unit 8
The Stock Market
Class preparation
Read Ch. 8 "The Stock Market"
Be ready to present your "Buying a Car" projects.
Lecture summary
When you own shares of stock, you own a portion of a corporation. You now have the right to participate in the activities of that firm.
Note: The concept of "stock" has to do with Corporations. There is no "stock" with a Sole Proprietorship or a Partnership (see the previous Unit, where we studied the various business types).
If you own a few shares of a huge corporation - say General Motors or Apple, Inc. - your involvement in the firm is pretty much limited to casting your one vote per share at the company's annual shareholders' meeting. On the other hand, if you own 51% of a firm's stock, you can exercise total control of the firm's affairs. And as a practical matter, if you own say 20% to 30% of the voting stock in a large corporation, you can exercise almost total control.
Selling its stock to the public is a way for Corporations to raise capital (the other way is for the firm to borrow money, or sell bonds to the public; more on that later in the course). Example: Let's say you started a manufacturing business 5 years ago, and now you're ready to buy new machinery or a new factory and greatly expand your business. Doing this takes large amounts of capital. If you are organized as a Corporation, you could create new shares of stock and sell that stock to your friends, relatives, or to the public - and raise the needed capital that way.
Why would your friends, or the public, be willing to buy your stock? Because that gives them a stake in the ownership of your firm, plus the right to receive quarterly dividends that you will pay them out of your firm's future profits. Furthermore, they could even sell their stock to someone else after 5 or 10 years for more than they paid for it, reaping what we call a "capital gain". So there are several reasons why you - or someone else - might want to buy stock in a corporation.
Now, obviously this is a simplified scenario - you need to comply with California laws and with the Securities Exchange Commission rules - but that is basically how stock works.
Read Ch. 8 "The Stock Market"
Be ready to present your "Buying a Car" projects.
Lecture summary
When you own shares of stock, you own a portion of a corporation. You now have the right to participate in the activities of that firm.
Note: The concept of "stock" has to do with Corporations. There is no "stock" with a Sole Proprietorship or a Partnership (see the previous Unit, where we studied the various business types).
If you own a few shares of a huge corporation - say General Motors or Apple, Inc. - your involvement in the firm is pretty much limited to casting your one vote per share at the company's annual shareholders' meeting. On the other hand, if you own 51% of a firm's stock, you can exercise total control of the firm's affairs. And as a practical matter, if you own say 20% to 30% of the voting stock in a large corporation, you can exercise almost total control.
Selling its stock to the public is a way for Corporations to raise capital (the other way is for the firm to borrow money, or sell bonds to the public; more on that later in the course). Example: Let's say you started a manufacturing business 5 years ago, and now you're ready to buy new machinery or a new factory and greatly expand your business. Doing this takes large amounts of capital. If you are organized as a Corporation, you could create new shares of stock and sell that stock to your friends, relatives, or to the public - and raise the needed capital that way.
Why would your friends, or the public, be willing to buy your stock? Because that gives them a stake in the ownership of your firm, plus the right to receive quarterly dividends that you will pay them out of your firm's future profits. Furthermore, they could even sell their stock to someone else after 5 or 10 years for more than they paid for it, reaping what we call a "capital gain". So there are several reasons why you - or someone else - might want to buy stock in a corporation.
Now, obviously this is a simplified scenario - you need to comply with California laws and with the Securities Exchange Commission rules - but that is basically how stock works.
In the lecture we will cover the types of stock, the major stock markets, Initial Public Offerings, and the various stock indexes (better: indices) you read about on financial websites.
Classroom Activity
Stock market simulation using Monopoly.
Objectives: How to raise capital for a business by creating and selling stock, negotiation, investing principles.
Online Stock Market Contest
Go to https://www.howthemarketworks.com/register/142246 and create a personal account with a username and your own password. Then join the "Economics2019" Class Contest in progress (the Contest password is "Donteatmycheeseburger"). Please choose a "username" that others in the class can identify.... or upload a picture so we can tell who it is!
You have $100,000 to invest. You can keep some of it in the form of "cash" if you want. I recommend that you limit your portfolio to around five (5) different companies to keep it simple.
The contest website contains a lot of investment aids and advice. You are encouraged to explore the website. The "Fortune 500" companies list (posted below, near the bottom) will give you ideas of companies to invest in.
We will keep the contest open for 6 weeks. You can buy and sell as many times as you want. The goal is to have the highest portfolio value at the end of the contest.
During class meetings, you will be given 3 minutes to give the class an update. Be prepared to explain what trades you have made, and why you picked the companies you did. You don't need a PowerPoint, you can do it from your seat at the "war room table". We will compare the standings at those times. Good luck, and don't lose your $100,000!
Stock market simulation using Monopoly.
Objectives: How to raise capital for a business by creating and selling stock, negotiation, investing principles.
Online Stock Market Contest
Go to https://www.howthemarketworks.com/register/142246 and create a personal account with a username and your own password. Then join the "Economics2019" Class Contest in progress (the Contest password is "Donteatmycheeseburger"). Please choose a "username" that others in the class can identify.... or upload a picture so we can tell who it is!
You have $100,000 to invest. You can keep some of it in the form of "cash" if you want. I recommend that you limit your portfolio to around five (5) different companies to keep it simple.
The contest website contains a lot of investment aids and advice. You are encouraged to explore the website. The "Fortune 500" companies list (posted below, near the bottom) will give you ideas of companies to invest in.
We will keep the contest open for 6 weeks. You can buy and sell as many times as you want. The goal is to have the highest portfolio value at the end of the contest.
During class meetings, you will be given 3 minutes to give the class an update. Be prepared to explain what trades you have made, and why you picked the companies you did. You don't need a PowerPoint, you can do it from your seat at the "war room table". We will compare the standings at those times. Good luck, and don't lose your $100,000!
Homework: refer to class emails for due dates
| 6._us_govt_spending_assignment.docx |
| 8._stock_market_questions_rev_2021.docx |
| The Fortune 500 companies list |
