Shang and Chou Lecture

Stock Market - 0809

* Stocks

- shares of ownership in a company

-> companies that are publicly owned issue stock

-> only a certain amount of stock is issued

- control of anything over 50% of stock controls company

- large holders 5%+ have a big say in companies

- shareholders meet regularly, big decisions made by election

-> board of directors elected

-> Chief Executive Officer chosen by elected board

- since control over companies is a big deal, stock price

should generally follow success of company

-> who wants a lame company, stock down

-> profitable companies might be bought, prices up

- many stocks pay dividends

-> an amount of $ paid per share annually (usually)

- at worst, stocks lose all value and your shares worthless

-> can’t come after you for more money

* Buying Stocks

- stock brokers work the markets for you

-> need a license to trade

-> someone who has a seat on stock exchanges

- hard to pick one great stock

-> buy a wide variety in case one goes bad

-> mutual funds also handy

=> a share in a pool of stocks run by a pro

=> one mutual fund share buys sub-shares of other stocks

=> presumably the pro will do better than you

- need to figure out how much of savings to risk

* Stock Markets (securities exchanges)

- a company where stocks are listed and traded

- companies issuing stock pay to list their stocks on exchanges

- brokers buy seats to trade their

- the main exchanges

-> New York Stock Exchange (NYSE)

=> on Wall Street

=> huge (1,900 companies’ stocks) and prestigious

=> NYSE has standards on profitability and size

=> many stocks pay dividends

-> National Association of Securities Dealers Automated

Quotation (NASDAQ)

=> a computerized exchange

=> cheap to list, few standards

=> small start-up start here

=> few stocks pay dividends

-> most other countries have stock exchanges (and indexes)

=> France (CAC), Germany (DAX), Japan (NIKKEI), and

England (FTSE) have huge markets

* the averages/indexes

- ways of seeing how the market is doing

- Dow Jones Industrial Average

-> an average of 30 big, key companies

-> a long-term benchmark

-> tracks economic bedrock

-> tells nothing about stocks not in the average

- Standard & Poors 500

-> 500 representative stocks

-> tracks broader companies’ performances

- various other indexes exist

-> transportation, technology, consumer goods