STOCK EXCHANGE The Stock Market is often referred to as an
exchange Why? To exchange means to trade An stock exchange is a
highly organized market where stocks and other forms of exchanges
are sold and bought
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HISTORY First similarities to the investment process occurred
in the 1600s in the East Indies In New York City, stock brokers
would make trades on the streets
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NEW YORK STOCK EXCHANGE In 1792, 24 stockbrokers signed the
Buttonwood Agreement that started the New York Stock Exchange This
group of stock brokers was very exclusive They moved their
operation indoors, to a coffee shop
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NEW YORK STOCK EXCHANGE The stock brokers that were not a part
of the group of 24 continued to make trades in the street By 1901,
the NYSE had grown to become a financial powerhouse
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AMERICAN STOCK EXCHANGE Made up of the group of investors that
was not included in the group of 24 that created the NYSE Known as
curbstone brokers because they traded outdoors, regardless of the
weather Anyone could be a part of this group Took chances on
smaller companies, emerging companies and new investment
opportunities
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MERGERS Merger-two companies that are combined together to
create one In 2007, Euronext, the European stock exchange merged
with NYSE In 2008, the American Stock Exchange also merged with
NYSE/EURONEXT Global marketplace-bringing together of world markets
in one exchange
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NASDAQ National Association of Securities Dealers Automated
Quotations Largest electronic screen based trading market in the
U.S. Created in 1971 Worlds first ever completely electronic
exchange
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NASDAQ VS. NYSE NASDAQNYSE Trades occur electronically, on a
telecommunications network Dealers market Trades occur physically
on the trading floor Auction market
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MARKET PERCEPTIONS The NASDAQ and the NYSE are viewed
differently
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PERCEPTION OF THE NASDAQ Technology, internet and electronics
Stocks considered to be uncertain and risky Lists companies that
are growth oriented and expected to grow at an above average
rate
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COMPANIES LISTED ON THE NASDAQ Facebook Microsoft Harley
Davidson Weight Watchers Sony Papa Johns
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PERCEPTION OF THE NYSE Companies are more well-established Blue
chip companies-companies with a national reputation for quality,
reliability and the ability to operate profitably in good times and
bad The stock of blue chip companies is known as blue chip
stock
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BLUE CHIP STOCK Why is it called blue chip stock? In the game
of poker, which is a game of chance and risk, the blue chip has the
highest value Hence, the name blue chip stock-stock in companies
with high value
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BLUE CHIP STOCKS As a result of their high level of financial
strength and market reputation, blue-chip stocks traditionally
carry substantially less risk than other stocks. They are generally
regarded as safe, sound investments.
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EXAMPLES General Electric AT&T Proctor & Gamble Chevron
Wal-Mart Boeing
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LISTING A COMPANY Deciding which exchange to list your company
on is important It usually comes down to cost
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COST NYSENASDAQ Entry Fee: $250,000 (One time fee) Yearly fee:
based on the number of shares, maximum of $500,000 Entry fee:
$50,000-$75,000 (one time fee) Yearly fee: based on the number of
shares, $27, 500
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PUBLIC VS. PRIVATE Both the NASDAQ and the NYSE are public
companies Both are also traded on the stock market
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BULLS AND THE BEARS Figure of speech used to describe the
condition of the stock market Bull market- a market in which stock
prices are rising, encouraging buying Bear market-a market in which
stock prices are falling, encouraging selling
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VALUE OF STOCKS Stock prices change every day as a result of
market forces. By this we mean that share prices change because of
supply and demand. If more people want to buy a stock (demand) than
sell it (supply), then the price moves up. Conversely, if more
people wanted to sell a stock than buy it, there would be greater
supply than demand, and the price would fall. The stock price also
reflects the growth that investors expect in the future
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CHOOSING STOCKS You have to figure out what news is positive or
negative for a company Every investor has their own ideas and
strategy Price movement of a stock indicates what investors feel a
companys stock is worth
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VALUE The amount of money a company makes (profit) is what
gives the stock value, or makes it worth money If a company never
makes money, they wont stay in business Public companies must
report their earnings 4 times a year Investors pay close attention
to the earnings reports when they are released
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MARKET CAPITALIZATION There are two areas that determine a
companys worth Market capitalization is a big factor in determining
a companys worth on the stock market Stock price multiplied by the
number of shares outstanding Example: a company that trades at $100
per share and has 1 million shares outstanding has a lesser value
than a company that trades at $50 that has 5 million shares
outstanding ($100 x 1 million = $100 million while $50 x 5 million
= $250 million)
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MAIN POINTS TO REMEMBER At the most fundamental level, supply
and demand in the market determines stock price. Price times the
number of shares outstanding (market capitalization) is the value
of a company. Comparing just the share price of two companies is
meaningless. Theoretically, earnings are what affect investors'
valuation of a company, but there are other indicators that
investors use to predict stock price. Remember, it is investors'
sentiments, attitudes and expectations that ultimately affect stock
prices. There are many theories that try to explain the way stock
prices move the way they do. Unfortunately, there is no one theory
that can explain everything.