Stock Market: Shares and Scares
By KRISTEN STERNBERG | NIE Educational Consultant
Owning stock means that you own a part or a fraction of a corporation. When you buy a share of stock you receive a piece of paper that proves your partial ownership in that company. Businesses sell shares (portions) of their stock in a public market known as the stock market. In this way, the business or corporation can gather large amounts of money from people who buy the shares (they are called shareholders). They use that money to move their company forward-to invest, expand or branch out to offer new products or services.
Homes for sale
For sale signs line the streets in Flagler County, like this stretch of S. Oceanshore Boulevard (News-Journal photo by David Massey)
There are many different kinds of stocks. Those offered by small companies--local businesses or others not likely to make it big-are called "penny stocks," while "growth stocks" indicate new or rapidly expanding companies, ones that have the potential to make it big but just as easily might fail. The highest levels of stocks are "blue chip" stocks; these are shares of stock in large, well-established corporations like Pepsi or Coca Cola, IBM, Nike and so on. Blue chip stocks are generally the safest investment for shareholders, but their stocks are divided into tiny fractions and it may take a large number of shares or a longer time to make a real profit on them.
Shareholders invest in a company, hoping that it will grow and prosper and that, in turn, the value of its shares (stocks) will also increase. When the economy is strong, people generally feel confident about their investments, and the value of the stock market as a whole tends to rise. Then there are more buyers than there are sellers. (This is referred to as a "bull market.") During times the economy is weak, consumers aren't as confident about their investments, so the stock market may take a downward swing. Then there are more seller than there are buyers. (This is called a "bear market.")
Many things can happen to make the market rise and fall. News items about certain areas of the economy, like this article about home prices, can affect the market. Politics also play a large role in the stock market, because the current state of a government has a great impact on consumer confidence. A political election, or a catastrophic event like the recent terrorist attacks on the World Trade Center and the Pentagon, causes stress and uncertainty, and people are less likely to trust the economy. In scary times, people are more eager to sell their stocks than they are to hold onto them as investments. When a lot of people want to sell stocks, the stock average will show a downward trend. Normally an economy can withstand a short-term downswing, but if it lasts too long the economy will go into a recession. During a recession, consumers are less likely to invest in the stock market.
Let's say you have a certain amount of money you want to invest in stocks. First of all, in order to profit from buying a stock, you have to do research. Choosing a successful company includes checking out such things as: how much profit a company has made in the recent past, whether the products or services it offers are likely to remain popular, how much the competition from other companies is likely to affect it, and how the company is managed or run.
How does it all work? If a company makes a profit after you buy shares in its stock, you make a percentage of that profit-on paper, of course. It's not until you sell your stock that you actually realize the profit. Buying (and selling) your stocks at just the right time is a risky business. As an investor, you must contact a stockbroker to give him or her instructions about your stocks. Stockbrokers handle your orders to buy or sell shares. When instructed, a stockbroker will send your message to a floor broker, who actually works on the floor in the stock exchange building. Stock exchanges are kind of like supermarkets where many kinds of stocks are bought and sold. Thousands of floor brokers stand in the various exchange buildings-in New York's Wall Street area as well as in other major cities-which makes buying and selling easy because you don't have to travel there yourself.
The New York Stock Exchange, one of the best known exchanges, has billions of dollars changing hands every day. Stockbrokers buy or sell stocks based upon their knowledge and their feelings about world, state and local affairs, and thousands of corporations--and millions of people--are affected by their actions.
Because stock trading is concentrated in only a few places, the price of each stock can be determined every second of the day. Investors can watch as a stock's price changes according to announcements from the company, breaking news reported by newspapers and other media and many more factors. After trading closes at the end of a day, changes in each stock's price are averaged into various indices (the plural of index) Market indices such as the Dow Jones Industrial Average (DJIA), which averages the gains and losses for 30 leading industrial companies, are used to indicate the general state of the market (and thus the economy). When it is reported that the DJIA is up a certain number of points on a particular day, many take it to mean that on the average the stock market did well.
How does the stock market affect kids? Check out the newspaper activities and the web links provided below to learn the answer to this and other questions you may have.
Try these interesting activities using The News-Journal
1. Imagine you have saved $500 to buy stocks. Study available articles and price indices in your newspaper's Business section or online. Then, choose a stock you predict will give a good return on your investment. After you have determined how many shares of your stock you may purchase for your $500, record that number along with the stock's current value. Check the newspaper as often as possible to follow its progress. Periodically record how well you are doing! (Sunshine State Standards: MA.A.1.2.2, MA.A.1.2.3, MA.A.3.2.2, MA.A.3.2.3, MA.B.3.2.1)
(Editorial cartoon: News-Journal/Bruce Beattie)
2. Over a period of several weeks, use your newspaper to record closing prices of at least two stock market indices such as the Dow Jones Industrial Average or the S&P 500 (an index of the top 500 companies). Prepare a chart of your findings and ask teachers or parents to allow you to explain to them any trends you identified from your data. From time to time, check current closing prices with your chart to see how they compare. (Sunshine State Standards: MA.A.1.2.2, MA.A.1.2.3, MA.B.2.2.1, MA.D.1.2.1, MA.E.1.2.1, MA.E.2.2.1, MA.E.2.2.2, MA.E.3.2.1, MA.E.3.2.2)
3. How do current events impact the stock market? Read your newspaper routinely to see how world, national, local and business news may indicate trends or changes in the market. Try to predict how the news stories you find will affect the market. As your understanding of the topic increases, ask for permission to prepare and deliver a short speech on your observations to classmates or to a teacher. (Sunshine State Standards: LA.A.2.2.5, LA.C.3.2.3)
4. Although stock indices are in the process of switching to the decimal system, most are still reported as fractions. Skim your newspaper (without using the Business pages) to find and record at least 10 different fractions. Convert each example to a decimal. Then, cover the fractions and, if possible, ask a friend to convert your decimals back to fractions. Compare your answers to make sure all your calculations were correct. You're math superstars if you got all 10 correct! (Sunshine State Standards: MA.A.1.2.3, MA.A.1.2.4, MA.A.3.2.3)
5. A stock index uses letter symbols to stand for company names. For example, the letter combination DIS is a symbol for the Disney Corporation. Two widely recognized pictorial symbols are also associated with the stock market. A bear is used to indicate a downward trend, while a bull denotes a strong market and an upward trend. Besides the stock market, in what other ways do we use symbols? Search your newspaper to find and clip photos and other illustrations that are symbolic in meaning. (For instance, the U.S. flag is symbolic of freedom.) Use your clippings to design a poster, making sure to label with a word or two what each symbol means to you. If possible, display your poster in a public place such as a neighborhood center, local business or nearby library. (Sunshine State Standards: VA.A.1.2.1, VA.B.1.2.1, VA.B.1.2.3, VA.C.1.2.2)
A copy of Florida's Sunshine State Standards can be found at intech2000.miamisci.org.
Check out these links to learn more
At a web site called How Stuff Works, you'll find much more information about stocks and the stock market. Interesting links include the basic idea behind the stock market, fun and easy-to-follow examples showing how to start your own corporation and interpreting the ups, downs, and averages of the market. www.howstuffworks.com/stock1.htm
Stocks, along with their daily ups or downs, are routinely shown as fractions. For example, a stock might sell at 16 3/4, or show an increase of 5/8. How did the stock market come to use fractions instead of sticking to the decimal system? Take a look at how the practice got started-and amaze your friends with this interesting and fun way of counting on your fingers! www.howstuffworks.com/question573.htm
Take a "tour" through the New York Stock Exchange, thanks to this ThinkQuest site, to find out how the stock market affects kids. You can take part in a free simulation to get a real idea of what the stock market is like and how much money you can make (or lose) with stock investments. In the stock market tutorial, you can learn more about how to choose stocks. library.thinkquest.org/3088/stockmarket/introduction.html
The Newspaper Association of America's web site contains links to many newspapers in the U.S. and around the world. Visit the site and check some of them out, to see if they have recently published any articles on this topic. To access the newspapers at the Newspaper Association of America's site, click on the "Hot Links" button and then select a state. Click on the "Internationals" button to view choices from other countries. www.naa.org
The Daytona Beach News-Journal NIE Program, published November 19, 2001; revised Dec. 30, 2008.