The Investment ChallengeThe Investment Challenge

PresentedPresented

ByBy

SOLENT SKILL QUESTSOLENT SKILL QUEST

How the Stock Market How the Stock Market WorksWorks

The Stock MarketThe Stock Market

• Daily News StatementsDaily News Statements

• Record Highs & LowsRecord Highs & Lows

• Gains & LossesGains & Losses

• Opening & Closing IndicesOpening & Closing Indices

The Questions!The Questions!

• What is Stock?What is Stock?

• What is the Stock Market?What is the Stock Market?

• Why do we need a Stock Market?Why do we need a Stock Market?

• Where does the Stock come from?Where does the Stock come from?

• Why do people want to Buy and Sell Why do people want to Buy and Sell from it?from it?

Determining ValueDetermining Value

ExampleExample A RestaurantA Restaurant

• PurchasesPurchases– BuildingBuilding– Kitchen EquipmentKitchen Equipment– TablesTables– ChairsChairs– StaffStaff– SuppliesSupplies– MarketingMarketing

• Cost £500,000Cost £500,000

FinancesFinances

DescriptionDescription COSTSCOSTS INCOMEINCOME

Building, Building, Equipment & Equipment & PurchasesPurchases

£500,000£500,000

11stst YEAR YEAR

ExpenseExpense £250,000£250,000

SalesSales £300,000£300,000

Profit/LossProfit/Loss £50,000£50,000

2nd YEAR Finances2nd YEAR Finances

22ndnd YEAR YEAR COSTSCOSTS INCOMEINCOME

ExpenseExpense £250,000£250,000

SalesSales £325,000£325,000

Profit/LossProfit/Loss £75,000£75,000

Sell the Company?Sell the Company?

What is it worth?What is it worth?

No Further TradingNo Further Trading

• Building and Equipment = £500,000Building and Equipment = £500,000

• Assets or Book ValueAssets or Book Value

Sell - Ongoing Business (Keeps Sell - Ongoing Business (Keeps trading)trading)

1.1. £750,000 = £750,000 = 10% return (75,000 per year Profit)10% return (75,000 per year Profit)

2.2. £1.5M = £1.5M = 5% return (75,000 per year profit)5% return (75,000 per year profit)

Selling the BusinessSelling the Business

Value of Business = £1.5MValue of Business = £1.5M• Selling 10 Parts = £150,000 per shareSelling 10 Parts = £150,000 per share• Each Share entitled to 1/10 of profitsEach Share entitled to 1/10 of profitsAlternativesAlternatives1.1. Sell 1500 Parts = £1000 per shareSell 1500 Parts = £1000 per share2.2. Divide into 3000 Shares – sell 1500 & Divide into 3000 Shares – sell 1500 &

keep 1500 (remain in control & bank keep 1500 (remain in control & bank £750,000)£750,000)

StockStock

• Ownership of Company Assets & ProfitsOwnership of Company Assets & Profits

• A A DividendDividend = A share’s proportion of the = A share’s proportion of the Company’s profitsCompany’s profits

If Restaurant:If Restaurant:• 10 owners10 owners• makes £75,000 profit makes £75,000 profit • then each share = £7,500then each share = £7,500

The Stock ExchangeThe Stock Exchange

• Selling the RestaurantSelling the Restaurant1.1. To local CommunityTo local Community

• Word of mouthWord of mouth• Advertise in Local PaperAdvertise in Local Paper

2.2. To wider community – DIFFICULT!To wider community – DIFFICULT!• Stock Market Stock Market (sometimes call Stock exchange)(sometimes call Stock exchange)

solves problemsolves problem• The LSE The LSE (London Stock Exchange)(London Stock Exchange) – The – The

Supermarket for buying and selling sharesSupermarket for buying and selling shares• The LSE – Better known as FTSE (The Footsie)The LSE – Better known as FTSE (The Footsie)• Use of Stock BrokersUse of Stock Brokers

The Stock ExchangeThe Stock Exchange

Interesting FactsInteresting Facts• All buying & Selling in ONE Place – Share price All buying & Selling in ONE Place – Share price

known every second of the Dayknown every second of the Day• Price fluctuates based on:Price fluctuates based on:

– Company NewsCompany NewsMedia NewsMedia NewsEconomic NewsEconomic News

• Price of Stock reflects:Price of Stock reflects:– Projected dividendProjected dividend– ProfitsProfits– Price of Commodities (Oil, Gas, Etc)Price of Commodities (Oil, Gas, Etc)

The FTSE IndicesThe FTSE Indices

• FTSE 100FTSE 100– 100 largest quoted companies (usually over 2 billion in value)100 largest quoted companies (usually over 2 billion in value)– Companies on index are changed quarterlyCompanies on index are changed quarterly

• FTSE 250FTSE 250– The 250 largest companies after FTSE 100The 250 largest companies after FTSE 100– Tracker Funds cant invest in these companiesTracker Funds cant invest in these companies

• FTSE Small CapFTSE Small Cap– About 550 Smaller CompaniesAbout 550 Smaller Companies

• FTSE All ShareFTSE All Share– About 900 CompaniesAbout 900 Companies– Price calculated at end of each dayPrice calculated at end of each day

Remember The Questions!Remember The Questions!

• What is Stock?What is Stock?

• What is the Stock Market?What is the Stock Market?

• Why do we need a Stock Market?Why do we need a Stock Market?

• Where does the Stock come from?Where does the Stock come from?

• Why do people want to Buy and Sell Why do people want to Buy and Sell from it?from it?

Why Invest in SharesWhy Invest in Shares

Interest Rate (5.25 %)

Dividend (7 %)

Share Price – FluctuationsFTSE 100 – 18%

Managing your InvestmentManaging your Investment

• Yahoo FinanceYahoo Finance

• FT.ComFT.Com

• Bloomberg.ComBloomberg.Com

• www.londonstockexchange.comwww.londonstockexchange.com

Share Price – The Influencing FactorsShare Price – The Influencing Factors

• The EconomyThe Economy

• Company NewsCompany News

• Analyst ReportsAnalyst Reports

• Press RecommendationPress Recommendation

• SentimentSentiment

• TechnologyTechnology

The NewspaperThe Newspaper

CompanyCompany PricePrice ChangeChange HighHigh LowLow

HBOSHBOS 11391139 +8+8 11731173 881881TescoTesco 433433 +3.5+3.5 456456 313313EurotunnelEurotunnel 2525 00 3232 2222BPBP 538538 +3+3 723723 527527First First ChoiceChoice

305305 +2+2 306306 194194

ITVITV 112112 +1+1 130130 9494

Task – Understanding Task – Understanding InformationInformationFrom the Daily Papers find the following information:From the Daily Papers find the following information:

1.1. Identify Newspaper & DateIdentify Newspaper & Date2.2. Identify FTSE 100 PriceIdentify FTSE 100 Price3.3. Identify FTSE 250 PriceIdentify FTSE 250 Price4.4. Find Price, Change, High Price, Low Price of:Find Price, Change, High Price, Low Price of:

1.1. PrudentialPrudential2.2. BarclaysBarclays3.3. SainsburySainsbury4.4. NextNext5.5. Mark & SpencerMark & Spencer

5.5. Identify the Business Headline Statement – Explain Identify the Business Headline Statement – Explain Comment?Comment?

TerminologyTerminology

• Shares/EquitiesShares/Equities

• AcquisitionAcquisition

• MergerMerger

• Profit/LossProfit/Loss

• Cash FlowCash Flow

• AssetsAssets

THE INVESTMENT THE INVESTMENT CHALLENGECHALLENGE

The Investment Challenge The Investment Challenge

Rules of the GameRules of the Game• Each Team Has £100,000 to investEach Team Has £100,000 to invest

• One days trading will take place (20 mins)One days trading will take place (20 mins)

• Day starts at 08:30am and closes at 4:30pmDay starts at 08:30am and closes at 4:30pm

• You can buy and sell at anytimeYou can buy and sell at anytime

• No Commission ChargesNo Commission Charges

• News Items will occur by Text and RadioNews Items will occur by Text and Radio

• Winner = Highest Value (Closing Cash & Share Winner = Highest Value (Closing Cash & Share Value)Value)

• Bell will signify start and end of tradingBell will signify start and end of trading

The Investment ChallengeThe Investment Challenge

• To complete a TradeTo complete a Trade

• Complete a Transaction DocumentComplete a Transaction Document

• Pass to Stock BrokerPass to Stock Broker

• Obtain PriceObtain Price

• Receive or Return a CertificateReceive or Return a Certificate

• Complete your Cash Flow DocumentComplete your Cash Flow Document

The Investment ChallengeThe Investment Challenge

Prepare your StrategyPrepare your Strategy

The Investment ChallengeThe Investment Challenge

The Game BeginsThe Game Begins

The Investment ChallengeThe Investment Challenge

Thank YouThank You

Robin J SmithRobin J SmithSolent Skill QuestSolent Skill Quest