The document provides an introduction to stock markets and investing. It discusses key concepts such as stocks, bonds, indexes, market orders, short selling, and margin trading. It also outlines different market sectors including defensive sectors like utilities and cyclical sectors that are more sensitive to economic changes. Finally, it introduces the LHA Stock Market Game, where students will each receive $100,000 to invest and trade stocks against their classmates.

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. Short Sales Selling stock without actually owning it You sell for 10$ Hopefully the price drops to 5$ Then you buy it back at 5$ Keep the profit  How is this risky?

25. Short Sales Short Sellers believe Price will fall soon They can deal with big losses if Price rises This type of purchase is RISKY Unlimited Losses

26. Buying on Margin Borrowing money to buy stock Buyer must put up 50% cash MINIMUM If Price falls, the 50% cash is worth LESS Buyer will have to add money (Margin Call)

27. 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, Dow Jones Industrial Average etc…. List of Indexes http://en.wikipedia.org/wiki/List_of_stock_market_indices

28. Full Index Some Indexes include every single stock on a stock market Canada – S&P/TSX Composite US – NASDAQ Composite

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

30. 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.

31. 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

32. 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?

33. 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

34. 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

35. 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.

36. 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.

37. 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!!!

38. General Market Strategies

39. 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

40. Investment Sectors - Defensive Defensive stocks include utilities and consumer staples. In a bear market these companies don’t usually suffer as much. Portfolio protection in a sense Because they are more safe, they fail to provide excessive gains. Defensive stocks are just that, defensive

41. Investment Sectors - Cyclical Everything else, which can easily react to changes in the market. The Nine Sectors: Basic Materials Capital Goods Communications Consumer Cyclical Energy Financial Health Care Technology Transportation

42. 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:___________________