This document provides an introduction to the stock market and the LHA Stock Market Game. It defines key market concepts like stocks, bonds, indexes and exchanges. It explains how to read stock quotes and factors that influence stock prices. The goal of the LHA Stock Market Game is for students to compete by investing a virtual $100,000 in stocks and tracking their portfolio value.

1. The Stock Market & Introduction to the LHA Stock Market Game Mr. Servello

2. Markets A market is any one of a variety of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange (Wikipedia) Stock Markets Bond Markets Futures Markets Commodities Markets Currency Markets Money Markets

3. Stocks and Bonds Companies that need $$$ can borrow, but they can also issue Bonds A bond is a document that formally promises to pay back a loan under specified terms and a given period of time.

4. Bonds Key Features of Bonds Face value: Price of the bond. The amount that the buyer will pay/lend the issuer

5. Bonds Key Features of Bonds Maturity date: The date when the Bond expires. The borrower pays back the lender. Bonds can also be sold prior to maturity.

7. Interest rates change

9. Who issues Bonds? Corporate Government (Federal or Provincial) Municipal Financial Institutions –Mortgage Backed

10. Benchmarks Benchmarks serve the purpose of comparison. We compare a certain bond to a benchmark to see if it performs better or worse than the usual. Click here to see a recent table of Canadian Benchmarks http://www.tmxmoney.com/HttpController?GetPage=BondsAndRates&Language=en

11. Bid/Ask Spread? If you are buying a bond, you will pay the Ask Price (always higher) If you are selling a bond, you will received the Bid Price (always lower) The spread or (difference) is kept by the broker as profit. This is not the same as commission which you will have to pay as well.

12. Yield to Maturity Receive Coupon payment of 100$ each anniversary 100$ 100$ 100$ Today – Buy Bond 900$ Year 3 – Bond Matures 1000$ 3 Coupon Payments = 300$ Gain from Bond Price = 100$ YTM = Gains/Price Paid YTM = 400/900 YTM = 44% over 3 years

13. Yield to Maturity Receive Coupon payment of 100$ each anniversary 130$ 130$ 130$ Today – Buy Bond 980$ Year 3 – Bond Matures 1000$ 3 Coupon Payments = Gain from Bond Price = YTM = Gains/Price Paid YTM = / YTM = % over 3 years

14. Do You Recognize Any Companies?

15. Stocks A stock is a certificate that certifies ownership of a certain portion of a firm. When a company issues stocks It does not borrow funds/add to debt Instead it increase the number of owners

16. Stocks Unlike bonds or direct borrowing, stocks do not promise a fixed annual payment. (Like the coupon) Returns depend on company performance. If profits are high, the firm may pay dividends.

17. Stocks A capital gain is an increase in the value of an asset. If you buy a share at 10$ and it increases to 15$, your capital gain is 5$ A realized capital gain occurs only when the owner sells the stock for a profit

18. The Common Stock Market Common Stock Ownership Distribution of earnings (variable) Share of assets Right to vote Preferred Stock Similar to Common stock with 2 main differences + fixed distribution of earnings -- no voting right

19. Types of Markets - Exchanges Physical Location Trading by members Stocks traded are ‘listed’ companies There are a number of exchanges around the world; you may have heard of the NYSE or the TSX http://en.wikipedia.org/wiki/List_of_stock_exchanges

21. Bear and Bull Describes upward and downward market trends. Can be used to describe a security (company), sector or market as a whole

22. Types of Orders of Stock Market Order Buy/Sell at market price Limit Order Buy/Sell at specific price Stop Loss Order Protect against big losses Trailing Stop Order Protect a profit

23. Types of Orders of Stock Good till Cancelled Active until you cancel the order Day Order Must be re entered each day if not filled All or None The entire order must be filled

24. Common Stock Owners are also referred to as shareholders or equity owners. A brokerage account is where the customer's securities and assets are held in the name of the brokerage firm, rather than you holding the stock certificate yourself. Board of Directors: A group of individuals that are elected. Representatives of the stockholders. The roles include such issues as the hiring/firing of executives, dividend policies, options policies and executive compensation. Every public company must have a Board of Directors.

25. Dividends Distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (i.e. dividends per share or DPS. Most secure and stable companies offer dividends to their stockholders. Their share prices might not move much, but the dividend attempts to make up for this. Common Stock

26. Capital Gain: Profit that results when the price of a security rises above its purchase price and the security is sold (realized gain). A capital loss would occur when the opposite takes place. Growth Stock: A stock that experiences a continued period of growth exceeding that of the economy. Generally, the duration is over a year in length. Income Stock: A stock that has a high, consistent, dividend paid annually. Speculative Stock: Stocks that offer the potential for substantial price increase, usually because of some special situation such as new management or the introduction of a promising new product. Types of Stock

27. Cyclical Stocks: these are stocks whose earnings and overall market performance are closely linked to the general state of the economy. Defensive Stocks: these stocks tend to hold their own, and even do well, when the economy starts to drop Mid-cap stocks: are medium-sized companies, generally with market values of less than $4-$5 billion but more than $1 billion. Small-cap stocks: are stocks that generally have market values of less than $1 billion but can offer above-average returns. Types of Stock

28. Reading Stock Quotes

29. Reading Stock Quotes Columns 1 & 2 52-Week High and Low – The highest and lowest prices the stock traded over the previous 52 weeks (one year) and typically does not include the previous day’s trading.

30. Reading Stock Quotes Column 3 Company Name & Type of Stock – The name of the company. If no special symbol or letter follows the name, it is common stock. Different symbols indicate different classes of shares (i.e., “pf” means preferred stock).

31. Reading Stock Quotes Column 4 Ticker Symbol – The unique alphabetic name which identifies the stock. When looking for stock quotes online, you search for a company by the ticker symbol.

32. Reading Stock Quotes Column 5 Dividend Per Share – The estimate of the anticipated yearly dividend per share in dollars and cents. If this space is blank, the company does not currently pay out dividends.

33. Reading Stock Quotes Column 6 Price/Earnings Ratio – Shows the relationship between a stock’s price and the company’s earnings for the last four quarters. Calculated by dividing the current price per share by the earnings per share. (higher is better)

34. Reading Stock Quotes Column 7 Year-to-Date Percentage Change – Reports gain or loss in each stock’s price as a percentage of its price on January 1.

35. Reading Stock Quotes Column 8 Trading Volume – The total number of shares traded for the day (in hundreds). Add two zeros to the end of the number listed to get the actual number traded.

36. Reading Stock Quotes Columns 9 & 10 Day High and Low – The price range at which the stock has traded throughout the day. These are the maximum and the minimum prices that people have paid for the stock.

37. Reading Stock Quotes Column 11 Close – The last trading price recorded when the market closed on the day..

38. Reading Stock Quotes Column 12 Net Change – The change in the stock price from the previous day’s closing price in dollars. When the net change is positive, it is recorded as being “up for the day.”

40. Stock Market Indicators Measures the average performance of a group of stocks on a market. Gives an overall performance of the market. Canada – S&P/TSX US – NASDAQ Compsite, Dow Jones Industrial Average etc…. List of Indexes http://en.wikipedia.org/wiki/List_of_stock_market_indices

41. DJIA Price Weighted More expensive stocks makes up bigger portion 30 large blue chip companies cross section of industries Leaders

42. NASDAQ Composite Index: Based on the stock prices of over 5,000 companies traded on the NASDAQ stock market. National Association of Securities Dealers Automated Quotation System.

43. S&P 500 (Standard and Poor) Value Weighted Perceived value of company 500 large blue chip companies Most popular benchmark for index funds What Mutual Funds compare themselves against

44. Determining the Price of Stock Coca Cola vs Chunky Cola What factors would you be considering when trying to decide between buying these two companies?

45. Determining the Price of a Stock Price affected by: How much $$$ are you excepted to receive (dividends) When are the dividends expected (Payouts, when companies make Profit, they pay dividends to their investors. The more Shares you have the more Dividends you get) How much risk is involved in the company

46. Determining the Price of a Stock A stock will be worth less if we are unsure about dividends A stock will be worth more if we are confident about dividends

47. Determining the Price of a Stock Price of a Stock should be the Present Value of the amounts we are expecting to receive in Dividends Announcements of higher expected future dividends or perceived lower risk should increase the firm’s stock price.

48. Determining the Price of a Stock Another factor that can affect price is Peoples views of a company One might call this a bubble because the stock price depends on what people expect that other people expect, etc.

49. Market Efficiency If information is truly public, market prices should reflect that and stock prices are efficient. You are technically not able to ‘beat’ the market Past Performance NEVER predicts the Future!!!

50. General Market Strategies

51. Market Crashes The Great Wall Street Crash of 1929 Aka Black Tuesday The Crash of 1987 Aka Black Monday The Crash of 2008 (Oct 1 – Oct 10) Black Week Oct 6-Oct 10

52. LHA Stock Market Game You will make an Account on www.marketwatch.com Search for and add yourself to the following game with the password below. Term 1 Game : you will compete against your classmates, each of you has 100 000$ to invest! Game:_______________________ Password:___________________